Standing Committee B

Mr. Win Griffiths in the Chair]

Pensions Bill

Malcolm Wicks: On a point of order, Mr. Griffiths. I welcome you to the Chair. The hon. Member for Eastbourne (Mr. Waterson) raised a point of order at the beginning of play this morning. I thought that it would be helpful to reciprocate with my own point of order. I welcome the opportunity to clarify the position on the two points that he raised. He referred first to a weekend press report concerning Allied Steel and Wire workers and other workers that we discussed at length last week.
 The hon. Gentleman may recall that I have already told the Committee—indeed, it was last Thursday—that we are working with the pensions industry to establish firmer estimates of the numbers and costs involved in such cases. I said that 
''we are currently exploring with industry representatives a basis on which we can establish firm estimates of the extent of the problem of defined benefit schemes winding up underfunded. We are also assessing the numbers affected and the potential scale of losses.''—[Official Report, Standing Committee B, 25 March 2004; c. 446.]
 I do not think that the Sunday newspapers added anything to what I said to the Committee. 
 Secondly, it seems that there has been confusion about the priority order. The hon. Gentleman and my hon. Friend the Under-Secretary may have been talking at cross-purposes last week. The Bill introduces a priority order that will broadly ensure that, for schemes that do not enter the pension protection fund because of their funding position, individual scheme members should not be worse off than if their schemes had fewer funds and entered the PPF. They were the priority order measures to which my hon. Friend was referred. 
 However, there is a separate question about the current priority order regulations. I wish to take the opportunity to remind members of the Committee that my right hon. Friend the Secretary of State for Work and Pensions said: 
''I can confirm that we shall move forward in the very near future to rebalance the order so that the basic benefits of those in the run-up to retirement and other deferred members take precedence over the indexation of pensions in payment. That will achieve a substantial rebalancing. Many members may gain 20 per cent. of their pension, so it is a worthwhile interim change before the pension protection fund comes into effect.''—[Official Report, 24 February 2004; Vol. 418, c. 214.]
 I hope that I have provided the necessary level of clarification sought by the hon. Member for Eastbourne. I shall be happy to write to him, so that we can all be absolutely clear about the two separate issues in respect of the priority order.

Schedule 7 - Pension compensation provisions

Amendment moved [this day]: No. 479, in 
schedule 7, page 200, line 41, leave out '27' and insert '25'.

Win Griffiths: I remind the Committee that with this we are taking Government amendments Nos. 481 to 485.

Malcolm Wicks: Under the chairmanship of Mr. Cran this morning, we were interrupted at the end of the sitting when I was talking about the Government amendments that deal with the cap on the pension protection fund. I was saying how we set out different types of compensation that are subject to the cap. I shall clarify the matter. The different types cover people under the normal retirement age of their scheme and who are not receiving an ill-health pension, but are pensioners at the assessment date. For example, they have taken early retirement. They also cover active and deferred members who are under the normal retirement age of their scheme at the assessment date and any future survivor's benefits in relation to those members will also be capped as the level of survivors' entitlement is calculated from the member's compensation.
 The amendment sets out the details of how the cap will apply. For example, sub-paragraphs (6) and (7) introduce the annualised value of any lump sum payments, which will enable them to be treated consistently with any periodic payments. If the total of periodic payments and any annualised values of lump sum payments exceed the cap, all amounts of compensation will be reduced proportionately by the cap fraction, so that the total compensation is equivalent to the level of the cap. The compensation cap at age 65 will be set by the Secretary of State. In order to maintain flexibility, the PPF board will publish figures for the level of the cap at other ages. They will be actuarially equivalent to the level at age 65 and will therefore be lower when the compensation is payable at ages younger than 65 and higher at older ages. 
 The other amendments are minor drafting amendments either correcting references between clauses or making changes to improve the wording or clarity of the clause. Amendment No. 485 would delete paragraph 27 as the provisions in that paragraph are now subsumed into paragraph 25. I hope that members of the Committee will accept the amendments.

Nigel Waterson: Welcome back to the Committee, Mr. Griffiths.
 I am grateful to the Minister for writing to the Committee, and for his explanation. He was caught in mid-sentence this morning. I read in Mr. Peter Ustinov's obituary in The Times today that someone once asked him how he would prefer to die and he replied that he did not mind as long as it was not in the middle of a sentence. That was a good answer.

Malcolm Wicks: I hope that that does not happen to me in the middle of my remarks on amendment No. 414.

Nigel Waterson: Given the excitement in this Committee, would anyone notice? I am sorry; that comment was mean and below the belt, and I withdraw it unreservedly.

Malcolm Wicks: I am a household name in my own household.

Nigel Waterson: I am grateful for the Minister's explanation, and I am delighted that I have not had to work out what the sinister-looking algebraic equation means; I take it entirely at face value that it means what the Minister says it means—that it is something to do with the annualised value. I can see the sense of trying to marry elements together so that there is one cap rather than a multiplicity of caps. That is right in general terms, but time will tell whether it wreaks unfairness in individual cases.
 The Minister was perhaps a little too eager to defend the cap; this morning he blithely talked about 10 per cent. of employees. For higher-paid employees, that could mean a very significant loss from the pension promise that they were expecting. I hope that the Chancellor's redistributive instincts are not creeping in.

Steve Webb: I hope that they are.

Nigel Waterson: I have just received a little yellow book on Liberal Democrat quotations, and I shall add that one to the collection. My party is not noted for its attachment to redistributive taxation. [Interruption.] Ah, the pension protection fund again.
 The Minister might have been a little too glib. I hope that his sole motive is the honourable one of trying to contain the costs. Ultimately, that was his central argument on the 90 per cent. and 100 per cent. cliff edge that we discussed this morning. I hope that he is not also slightly gleeful that higher-paid employees will lose out significantly more than others simply because they are more highly paid. There is no sin in that; indeed, it may reflect some merit on their part, or commitment to their company. We should remember that, and that they will lose out disproportionately even under this scheme. 
 The explanatory note was helpful, and I hope that more of them are in the pipeline on future amendments. Having read that and listened to what has been said, I will not oppose the amendments. 
 Amendment agreed to. 
 Amendments made: No. 480, in 
schedule 7, page 203, leave out line 4 and insert— 
 '(3) The compensation is a lump sum equal to 90% of the protected amount. 
 (3A) In sub-paragraph (3) ''the protected amount'' means the aggregate of—'.
 No. 481, in 
schedule 7, page 203, line 21, leave out '27' and insert '25'.—[Malcolm Wicks.]

Nigel Waterson: I beg to move amendment No. 414, in
schedule 7, page 204, line 25, after 'may', insert 
 '(and in the case of children must)'. 
 This is a short point that slightly mirrors the debate on widows and widowers. There is no provision in schedule 7 for any children's pensions that might otherwise have been payable under the scheme. Paragraph 22 contains a general regulatory power to 
allow compensation to be payable to prescribed dependants, but it seemed right to have a clear obligation in the schedule giving statutory rights to children who would have been entitled under the scheme. I have a sinking feeling that this is already covered but, even if it is, we do not think that it is sufficiently covered.

Malcolm Wicks: I assure the hon. Gentleman that the purpose of the PPF compensation in the form of dependants' benefits, as set out in paragraph 22, is to provide security for children. The hon. Gentleman's amendment is thus well intentioned—my notes say that it is ''superfluous'' but that sounds rude, and I want to start the afternoon on a good note.
 The detail of the provisions for PPF dependants' benefits will be set out in regulation, and that will encompass children. Provisions will be set out in regulations as flexibly as required when dealing with the complex area of dependants. With that assurance, I hope that the hon. Gentleman will consider withdrawing his well intentioned amendment.

Nigel Waterson: It is possible to be both well intentioned and superfluous. I plead guilty on both counts, and beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendments made: No. 482, in 
schedule 7, page 204, line 43, at end insert— 
 '( ) Any reduction required to be made under paragraph 25 (compensation cap) must be made before determining the amount of a person's periodic compensation which may be commuted under this paragraph.'.
 No. 483, in 
schedule 7, page 205, line 42, leave out paragraph 25 and insert—
'25 (1) Where— 
 (a) a person becomes entitled to relevant compensation in respect of a benefit (''benefit A'') under the scheme, and 
 (b) sub-paragraph (2)(a) or (b) applies, 
 the amount of the compensation must be restricted in accordance with sub-paragraph (3). 
 (2) For the purposes of sub-paragraph (1)— 
 (a) this paragraph applies if— 
 (i) the annual value of benefit A exceeds the compensation cap, and 
 (ii) paragraph (b)(i) does not apply, and 
 (b) this paragraph applies if— 
 (i) at the same time as the person becomes entitled to relevant compensation in respect of benefit A he also becomes entitled to relevant compensation in respect of one or more other benefits under the scheme or a connected occupational pension scheme (''benefit or benefits B''), and 
 (ii) the aggregate of the annual values of benefit A and benefit or benefits B exceeds the compensation cap. 
 (3) Where the relevant compensation in respect of benefit A is required to be restricted in accordance with this sub-paragraph— 
 (a) if that compensation is within sub-paragraph (4)(a), the protected pension rate for the purposes of paragraph 3(3)(a) is the cap fraction of the rate determined in accordance with paragraph 3(5), 
 (b) if that compensation is within sub-paragraph (4)(b), the protected notional pension for the purposes of paragraph 11(3)(a) is the cap fraction of the rate determined in accordance with paragraph 11(4); 
 (c) if that compensation is within sub-paragraph (4)(c), the protected amount for the purposes of paragraph 14(3) is the cap fraction of the amount determined in accordance with paragraph 14(3A); 
 (d) if that compensation is within sub-paragraph (4)(d), the protected pension rate for the purposes of paragraph 15(3)(a) is the cap fraction of the rate determined in accordance with paragraph 15(4); 
 (e) if that compensation is within sub-paragraph (4)(e), the protected amount for the purposes of paragraph 19(3) is the cap fraction of the amount determined in accordance with paragraph 19(3A). 
 (4) For the purposes of this paragraph ''relevant compensation'' means— 
 (a) periodic compensation under paragraph 3 (in a case to which sub-paragraph (7) of that paragraph applies), 
 (b) periodic compensation under paragraph 11, 
 (c) compensation under paragraph 14, 
 (d) periodic compensation under paragraph 15, or 
 (e) compensation under paragraph 19. 
 (5) For the purposes of this paragraph, ''the cap fraction'' means—

C V

Where— 
 C is the compensation cap, and 
 V is the annual value of benefit A or, in a case to which sub-paragraph (2)(b) applies, the aggregate of the annual values of benefit A and benefit or benefits B. 
 (6) For the purposes of this paragraph the ''annual value'' of a benefit in respect of which a person has become entitled to relevant compensation means— 
 (a) if the relevant compensation is within sub-paragraph (4)(a) and neither paragraph (b) nor (c) below applies, the amount of the protected pension rate for the purposes of paragraph 3(3)(a); 
 (b) if the relevant compensation is within sub-paragraph (4)(a) and is in respect of a pension of which a portion has been commuted for a lump sum, the amount which would have been the protected pension rate for those purposes had that portion not been commuted; 
 (c) if the relevant compensation is within sub-paragraph (4)(a) and the person became entitled to a relevant lump sum under the scheme at the same time as he became entitled to the pension to which that compensation relates, an amount equal to the aggregate of— 
 (i) the protected pension rate for the purposes of paragraph 3(3)(a), and 
 (ii) the annualised value of the relevant lump sum; 
 (d) if the relevant compensation is within sub-paragraph (4)(b), the amount of the protected notional pension for the purposes of paragraph 11(3)(a); 
 (e) if the relevant compensation is within sub-paragraph (4)(c), the annualised value of the protected amount for the purposes of paragraph 14(3); 
 (f) if the relevant compensation is within sub-paragraph (4)(d), the amount of the protected pension rate for the purposes of paragraph 15(3)(a); 
 (g) if the relevant compensation is within sub-paragraph (4)(e), the annualised value of the protected amount for the purposes of paragraph 19(3); 
 and for the purposes of determining the annual value of a benefit any reduction required to be made by this paragraph is to be disregarded. 
 (7) In this paragraph— 
 ''annualised value'' of a lump sum or amount means the annualised actuarially equivalent amount of that sum or amount determined in accordance with actuarial factors published by the Board; 
 ''the compensation cap'', in relation to the person who becomes entitled to relevant compensation in respect of benefit A, means— 
 (a) the amount specified by the Secretary of State by order, or 
 (b) where the person— 
 (i) has not attained the age of 65, or 
 (ii) has attained the age of 66, 
 at the time he first becomes entitled to that compensation, that amount as adjusted by the Board in accordance with actuarial adjustment factors published by it; 
 and for the purposes of this paragraph, except in prescribed circumstances, the scheme is connected with another occupational pension scheme if the same person is or was an employer in relation to both schemes. 
 (8) For the purposes of sub-paragraph (6)(c) a lump sum under the scheme is a relevant lump sum if the person's entitlement to the lump sum— 
 (a) is attributable to his pensionable service under the scheme or another scheme, and 
 (b) did not arise by virtue of any provision of the admissible rules of the scheme making special provision as to early payment of pension on grounds of ill health. 
 (9) Regulations may provide for this paragraph to apply with prescribed modifications where a person becomes entitled to relevant compensation in respect of a benefit and he has previously— 
 (a) become entitled to relevant compensation in respect of a benefit or benefits under the scheme or a connected occupational pension scheme, or 
 (b) become entitled to one or more lump sums under the scheme or a connected occupational pension scheme. 
 (10) Regulations may prescribe sums which are to disregarded for the purposes of this paragraph.'.
 No. 484, in 
schedule 7, page 206, line 44, leave out 'rate' and insert 'amount'.
 No. 485, in 
schedule 7, page 207, line 2, leave out paragraph 27.—[Malcolm Wicks.]
 Amendment proposed: No. 506, in 
schedule 7, page 207, leave out line 36.—[Malcolm Wicks.]

Win Griffiths: With this it will be convenient to discuss Government amendments Nos. 492 to 495, 497, 504 and 505.

Nigel Waterson: I want to make a small point. I hope that in the outbreak of amity this afternoon the Minister will not take it amiss.
 We on the Conservative Benches work terribly hard to keep up with the torrent of Government amendments, as well as with our own amendments and even the occasional Liberal Democrat amendment. We are working on the assumption that we shall receive a briefing on amendments that have any substance to them. If there is no briefing, we assume that they are minor or drafting amendments. I would not want there to be any misunderstanding.

Malcolm Wicks: I can give that assurance, and we will do our best to keep Committee members informed of those amendments that are essentially technical. I am grateful that the hon. Gentleman is in a good mood. He talked about the torrent of Government amendments, rather than the torrid Government amendments, which was kind.
 Amendment agreed to.

Bill Tynan: I beg to move amendment No. 436, in
schedule 7, page 207, line 38, leave out 'the lesser of' and insert— 
 '(a) in respect of periods of service prior to the assessment date, the percentage increase provided for under the Rules of the scheme; 
 (b) in respect of periods of service after the assessment date, the lesser of'.

Win Griffiths: With this it will be convenient to discuss amendment No. 415, in
schedule 7, page 207, line 42, leave out '2.5%' and insert '5%.'.

Bill Tynan: This is a simple probing amendment. The current position is that trustees normally have the opportunity to do something. In a pension scheme there is a set figure regarding increasing pensions for pensioners who have taken them. If there were a surplus in the scheme, there could often be a situation in which the trustees could take a decision to pay a higher sum than the amount in the pension scheme. I realise that in respect of the pension protection fund, we have to be conscious that we are talking about an increase of 2.5 per cent., which is very limited. If a pension is accrued before the scheme is taken under the care of the pension protection fund, it should increase at the same level that applies under the rules of its pension scheme. If it is taken into assessment, there is a danger that it will only be increased by 2.5 per cent. and will override the rules of the scheme even before it comes under the PPF's control. I ask the Minister to consider that seriously.
 There is opportunity for the Secretary of State to take a decision, saying that the 2.5 per cent. could be less than 2.5 per cent. My union is concerned—as I am sure other interested bodies are—that if the inflation rate were substantially higher than 2.5 per cent, and if we did not increase the pension on the basis of at least the inflation rate, the value of the pension would be lost. Although I understand that the 2.5 per cent. figure is in the Bill as drafted, I am concerned that the value might be lost if a scheme were to be taken into assessment. Currently, the 2.5 per cent. figure might not cover the rate of inflation. I ask for clarification on both those issues.

Nigel Waterson: This is, to some extent, an echo of a debate that we had on indexation what seems like aeons ago, but was presumably only in the past couple of weeks. I shall try not to weary the Committee more than is necessary. There were some amendments on the main indexation provisions in a previous clause, and we had something to say about the assumptions that seemed to underlie them—assumptions about inflation remaining low; we would all be delighted if that were so, but a third term of this Government might well ensure the opposite. Who knows?

Malcolm Wicks: A third term.

Nigel Waterson: I do not want to get into that, with third-term tax rises and all that.
 The reality is that if things start to change, some pensioners who are currently protected under the wing of the PPF would end up worse off than they might otherwise have been. We deployed those arguments in 
 the previous clause relating to indexation, and they are just as powerful here. That is why we want to remove the reference to 2.5 per cent. and re-insert 5 per cent. If I remember it right, there is a section in the regulatory impact assessment about all this. However, it is difficult to see on what basis it is being proposed.

John Robertson: The hon. Gentleman's figure of 5 per cent. sounds reasonable, but where would that lie in terms of inflation? Some of us are old enough to remember the early '70s, when, at one stage, we were talking about inflation of 25 per cent. How would a rate of 5 per cent. seem if there was that kind of rate of inflation?

Nigel Waterson: Well, some of us are old enough to remember the Callaghan Government, and the roaring inflation and many other problems them. However, I know that you will lose patience if I go too far down that road, Mr. Griffiths.
 As I understand it, 5 per cent. is merely the status quo and the ordinary situation in terms of the indexation of pension increases. Of course, the hon. Gentleman is right—if this is the point that he is making—that, in those days, a rate of 5 per cent. would have been irrelevant, but at the moment there seems to be a kind of consensus that the figure works reasonably well. 
 We have started off with a bold pension promise, which the Government will no doubt continue to shout from the rooftops, but everywhere that we turn today we find a bit of cheese paring going on—that is, ways of reducing what people will get. This is yet another example of that; we are toning down the indexation that people could get. At the moment, that would not be a problem, and no doubt that is what the Minister will say, but who knows what the future may hold? I do not want to repeat the arguments that we made when the issue last arose, but we are dubious about the matter—hence our amendment, which I commend to the Committee.

Steve Webb: I want to make a couple of observations on the amendments. I am quite attracted to amendment No. 436 because, in a sense, it preserves the principle of the PPF trying to replace the pension that a person expected to draw or—in this case, if I understand the context correctly—is actually drawing. That person would have acquired expectations. The question is how far the PPF should let those expectations down. The idea in the amendment that people should get what they would have got seems quite a good principle. When we made that point earlier, the Minister's reply was, ''Ah, but it's all very expensive,'' and he said that as soon as one uses a principle that relates to the details of the scheme, the fund suddenly costs a lot more to run.
 Clearly, anything in the Bill that makes the cover provided by the PPF specific to the scheme that it replaces adds a burden and a cost; but the additional cost would be different according to the kind of replication that we are talking about. In this case, we are talking about replicating the indexation rules—post-retirement, I think—of pensions in payment under individual schemes. Are those fairly standard, or are there a hundred thousand different sets of rules? 
 If practically all the schemes fall into one, two or three different types, and we are only asking the PPF to decide whether a scheme is A, B or C and to mirror it, that is perhaps not much of a burden. Some of the other ways in which we have asked the PPF to replicate scheme rules and regulations might have been much more onerous, and one can see that there is a point at which one says, ''Too much detail—Ed.'' 
 We are talking about something pretty fundamental; we have used the phrase ''bells and whistles'' in the past, but indexation is not an afterthought. It determines people's living standard over a retirement that could last, particularly in the case of a woman pensioner, 30 years. The odd per cent. here or there over a 30-year retirement could mean a third or a half of one's standard of living. That is significant. I hope that the Minister can give us some guidance as to whether scheme-specific indexation rules vary enormously, or whether it is fairly straightforward to look at a scheme, perhaps ask the scheme actuary or whoever, ''What's your indexation rule? Tick the boxes'', and then to crunch it. Is that really so great a burden? I am sure that one of the Minister's responses will be, ''Oh, it's all too bureaucratic and scheme-specific.'' 
 The second point, which, again, slightly echoes something that we said this morning, is that people have, in general, paid for the benefits. I recognise that, if there were no PPF, they would be completely stuffed; however, the Minister is drawing a distinction between the people who paid for benefits in a particular way, and is penalising them particularly, relative to other people in the PPF. That is the point that I am trying to make. Some people will have fairly high contribution rates, and their scheme will have done quite well. To deal with the surplus, indexation arrangements are made more generous. Others may pay lower contribution rates, and their schemes may have done less well. There is no surplus, and no discretionary change to the indexation rules, but they never pay for that. Again, it is rough justice. The Minister is equalising people who may have paid for the benefits with those who have not. Therefore, in a sense, he is giving something for nothing or nothing for something in such cases. 
 Amendment No. 415 would increase indexation to 5 per cent. That, in a sense, would be the status quo, because it would mirror the limited price indexation. However, there is no status quo for the PPF, because there is no PPF. We need to design from scratch what the PPF benefits will look like. 
 I had a revelation at the end of this morning's sitting, which I want to share with the Minister because it is germane to the amendment. When we consider the impact of any change to the generosity of the PPF benefits on the level of the levy, we are not dealing with the total amount of benefits, but with the amount that the levy has to raise—that is, the gap between the money that the funds put in and the total amount of liabilities. Any incremental change that we make to the level and generosity of the benefits will have a gearing effect, similar to that of the council tax. 
 Committee members will all be familiar with the analogy. If a council wants to do a bit more—say, 
 spend 1 per cent. more on its total budget—it has to charge 4 per cent. more on its council tax. It is geared; one is only dealing with the gap between two big numbers—the liability and the income. The same is true of the PPF. 
 The reason why I raised the point, other than to admit in an indirect and roundabout way that I was wrong this morning, was to say that, although the amendment tabled by the hon. Member for Eastbourne looks innocuous, presumably he is now asking for 5 per cent. indexation. Although against the aggregate liabilities of the fund that may not look like such a big percentage, presumably, given the gap that the levy might have to fill, it could be quite a big percentage. Will the Minister tell us what that number would be?

Malcolm Wicks: We will not discuss the supernatural nature of the hon. Gentleman's revelation. The hon. Gentleman reads one set of newspapers; I read others. There was some suggestion over the weekend that he might be a contender for the leadership of the Liberal Democrats. If it were a primary election in the United States, that revelation might gather more votes than in our more down-to-earth and secular society. That is for him to judge.
 From April 1997, occupational pension schemes have been required to provide indexation capped at 5 per cent. on all pension accruals. However, requiring pension schemes to have an indexation at all is a relatively recent phenomenon. However, as we have heard, clause 212 would reduce the level of indexation to 2.5 per cent. on all future accruals. We have discussed that; it was controversial, but we have resolved that matter. 
 Providing a level of indexation greater than 2.5 per cent. on PPF compensation would not be consistent with other provisions in the Bill. It would also be inconsistent with our principle that the PPF should not, in general, provide more generous benefits than scheme rules. 
 The PPF is being set up to provide adequate protection for individuals who face losing some or all of their pension entitlements, not to provide a level of compensation that would attempt to match the level of scheme benefits, or even offer more. Providing indexation increases prior to 1997 could result in some members receiving a level of PPF compensation in excess of the level that would have been provided from their scheme. 
 However, I stress that the PPF seeks to provide a consistent and meaningful level of compensation for all members eligible for fund assistance. Restricting the amount of indexation paid on PPF compensation would ensure that the PPF could do that, by being better able to predict its liabilities and plan ahead financially. 
 The Opposition are curiously silent on the question of the need to match and get the balance right between security and cost, which I keep stressing. I do not know whether that is because I have failed to convince them of the importance of cost on schemes, or whether they do not want to discuss the issue. I take it very seriously, at a time when all of us have an interest in 
 ensuring that decent occupational pension schemes survive and that more are opened to benefit more of our citizens. Surely hon. Members would agree that we need to strike that balance as well as we can? 
 As my hon. Friend the Member for Hamilton, South (Mr. Tynan) knows, we are sadly not discussing a situation where we are comparing the pension protection fund benefits with the scheme benefits. In a sense, we are not discussing that because the scheme has gone bust. For some reason of analysis one can make that comparison, but people will not get the things that they would have got, because the scheme has gone bust. That is the purpose of the pension protection fund.

Bill Tynan: In the context of this morning's discussions, we established that we are discussing 90 per cent. and not 100 per cent. If we establish 90 per cent. and then lock in 2.5 per cent., there is a danger that we will further erode the amount of pension that someone will achieve over a period. That is a double whammy. If the inflation rate is above 2.5 per cent., that would eat into the pension. I argued that it is worth while to have the opportunity to go above that 2.5 per cent. and recognise the inflation rate in a pension scheme to protect the value, even at the 90 per cent. Ministers should consider that.

Malcolm Wicks: The big whammy to pension scheme members has already been done because the company has gone bust. That is the situation. In the current era, inflation has, mercifully, been very low. It increases and decreases a little, but it has been about 2.5 per cent. That is why we picked that figure. No doubt others would have picked a different one if we were in another era. Of course, we are confident that the Government will hold inflation down. Anything else that I might say should not deflect from that. If, in some future era—yes, to be partisan, under another Government—inflation were much higher, no doubt the Government of the day might want to think again. However, we are in the situation that I referred to and the provision offers protection.
 I hate to drone on about costs, but we reckon that indexation for all service and all members could cost the levy an extra £200 million. We are talking about significant sums. My hon. Friend does not seem to agree with my arithmetic and, again, perhaps one of the famous letters or exchanges can take place. I would hate it if the Government, in a good natured way, accepted all the amendments—we are not going to, by the way—and, as a result, heard in the coming months and years that more and more employers were using the cost of the fund as an excuse to flee away from defined benefit schemes. That would, of course, be quite the wrong way to proceed, but that is the danger.

Nigel Waterson: The problem is that each of our little debates seems to mark another milestone in the retreat from the original full pension promise. The Minister talks about £200 million. He might be right; I do not know and suspect that he does not either, but he will
 write to us about it. Presumably, that is £200 million that might otherwise be paid to pensioners.

Malcolm Wicks: I am sorry?

Nigel Waterson: Where else would it go?

Malcolm Wicks: I am saying that the amount that would have to be taken away from levy payers would be £200 million. We do not think that that cost is worth paying.
 I mentioned future eras. We are not anticipating this, but the fund's board can increase the 2.5 per cent. under paragraph 29 to schedule 7. Although we hope that that is light years way, if inflation were very much lower or very much higher, the board could revisit the matter.

Nigel Waterson: If there is the same kind of deficit in those mythical light years from now that the American scheme faces, there would be an enormous temptation not to change the figure.

Malcolm Wicks: That would be for the board to decide and is another reason why it should be at arm's length. The hon. Gentleman asks for an enormous extra amount to go to the pension protection fund—I do not know whether he has squared that with the shadow Chancellor—whereas we are prudently trying to strike the right balance between security and costs.

Bill Tynan: I thank the Minister for his comprehensive answer. However, I have concerns. This morning, we spoke about 10 per cent., 90 per cent. and 100 per cent., and that the cost would be £100 million. I am not a mathematician. We now have a figure of £200 million for an inflation-proofed indexation. That is incredible. If inflation stays low there is no cost to escape; the figure is only 2.5 per cent. There will be an increase only if the inflation rate lets rip, but we do not know what that figure will be—3 per cent., perhaps, or 4 per cent. On that basis, I find the sum of £200 million incredible. How can the Government come up with that amount when they do not know what the inflation rate will be and we have no idea what we are asking for?
 I was thinking about the value of the scheme. The 90 per cent. will reduce the value for those who receive pensions. In the circumstances, we must consider how to protect the amount that is given from a scheme that has been wound up. We have floated the pension protection fund as a basis for encouraging people to pay into pension schemes. We want to protect their interests and avoid the situation in which ASW finds itself with only 30 or 40 per cent. If we can protect the reduced amount of money that pensioners receive at the 90 per cent. level, that will be a step forward. 
 I hope that we never have a Government of a different political complexion. I also hope that the inflation rate will stay low, but I would hate us to be tied to 2.5 per cent. Concerns have been raised that the pension fund might go into deficit like the American scheme did, and the point has been made that the scheme allows for the 2.5 per cent. to be reduced. 
 I am happy to withdraw the amendment on the basis that I will have the opportunity to reintroduce it on Report if I feel that that is necessary. I am aware that an amendment was voted on earlier in our 
 proceedings and cannot be reintroduced. Therefore, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

Kevin Brennan: On a point of order, Mr. Griffiths. With regard to what my hon. Friend the Member for Hamilton, South just said, I raised that matter with your co-Chairman, Mr. Cran, who confirmed that it would be in order for an hon. Member to reintroduce an amendment if it had been voted on in Committee. I hope that you can confirm that that is the case.

Win Griffiths: Yes, but that is reliant on the amendment being selected. If an amendment has been voted on in Committee, that does not always mean that it will not be selected. Such decisions are made on a case-by-case basis; there is no general rule.

George Osborne: Further to that point of order, Mr. Griffiths. Can you confirm that the best way to change the law would be to vote through the changes in Committee, which we are perfectly able to do? If hon. Members win the support of a majority of the Committee for their amendment, they will amend the Bill.

Win Griffiths: That is not a matter for the Chairman to comment on.
 Amendment proposed: No. 507, in 
schedule 7, page 208, line 5, leave out from 'attributable' to end of line 10 and insert 'to post–1997 service, and'.—[Malcolm Wicks.]

Win Griffiths: With this it will be convenient to discuss the following:
 Amendment No. 270, in 
schedule 7, page 208, line 6, leave out 
 'on or after 6th April 1997'. 
Amendment No. 271, in 
schedule 7, page 208, line 9, leave out 
 'on or after that date'. 
 Government amendment No. 508.

Nigel Waterson: It would be great if one day I could move one of my amendments formally. However, it would not be as much fun and they all have substance.
 Amendments Nos. 270 and 271 examine another aspect of the salami slicing that the Government are trying to impose on their promise. The amendments are inspired by the Occupational Pensioners Alliance, although it is not the only concerned group. It is quite exercised by the widening gap between the hype attached to the Bill, the effects of the PPF and the reality. 
 The provision turns on the date of 6 April 1997. In the words of the OPA: 
''The Government has been keen to point out that pensioners will receive '100% compensation' from the PPF.''
 That is the headline figure. We discussed the 100 per cent. for people who have already retired, but, according to the OPA, that is only for pensions that are 
''in payment at the date of insolvency and does not include all the future pension increases that many pensioners might have'' 
reasonably 
''been expecting from the original pension scheme. For those pensioners who retired before 6th April 1997, the PPF will not grant any increases to pensions in payment. In practice this could mean the PPF protects only around 70 to 80% of the value of the total pension promise.''
 That is separate from other issues, such as the cap for some 10 per cent. of higher paid employees and the Government's or the board's reserve power—I forget which—to reduce the benefits, presumably if they face an unsustainable deficit. 
 The Government have not been keen to disguise the situation. In their paper published on 23 February, they said: 
''PPF pensions in payment will be indexed in line with the Retail Price Index . . . capped at 2.5%'',
 which we have just debated, 
''but only in respect of rights built up since April 1997 (which is when the statutory obligation to index occupational pensions in payment was introduced). Deferred PPF pension rights will be revalued in line with the RPI capped at 5%.''
 Again, to quote the Occupational Pensioners Alliance: 
''This will be an unacceptable position for many pensioner scheme members who will lose a significant proportion of their revenue based on this calculation.''
 It urges Committee members to vote against those proposals. 
 I refer again to the infamous open letter from the country's four leading actuaries, who raise the same point: that no future increases for retired members will apply for benefits earned before April 1997. They also describe exactly how the calculations will be made and add that there is a power to stop increasing pensions if the fund cannot afford it. There is also the power of the Secretary of State to further reduce the benefits paid by the PPF. 
 Although I imagine that the Minister will berate us for increasing the costs of the PPF, we are trying to reinvest it with the reality suggested by its image. As I said, there is a danger that it may be oversold. Conservative Members do not want to be party to that. 
 I referred to the actuaries' letter, which is old hat. That was last week. This week, the pension lawyers are up in arms. Mr. Tim Cox, the chairman of the Association of Pensions Lawyers, touched on the issue and gave an example of the chaos that is reigning on the different types of protection that different groups will receive from the PPF. He says: 
''The best protection goes to those who have already retired at normal retirement age. But retirement age varies from scheme to scheme.''
 He continues: 
''Most management schemes have a normal retirement age of 60, while other workers can only pick up a full pension at 65. This means a manager aged 61 might well get considerably more than a lower-grade worker who retired at 64. The Government does not seem to have considered the fairness, nor the impact, of this.''
 He goes on: 
''We believe that many schemes will reduce their normal retirement age, along with pensions paid at that age, to maximise protection. Those who work longer will receive higher pensions.''
 I do not want to depress Committee members, but Tim Cox described the Bill in this context and more generally as follows: 
''We have a mountain of words but a complete lack of clarity, which is very demoralising for those trying to run pension funds.''
 Another specialist in the area, Mr. Robin Ellison, who is a lawyer with Pinsent, says: 
''The Government has lost the plot. It's terribly depressing. The law of unintended consequences will apply here in spades.''
 Finally, Mr. Orton, a pensions lawyer with Eversheds, which I think is the body that the Government are recruiting to find out the size of the problem of people who have already lost their pension rights, says: 
''I am struggling to understand what the Bill is trying to do. We already have muddled pensions law. This Bill looks likely to make it worse. Ministers promise fundamental reform, and all they're doing is tinkering.''
 This is certainly tinkering, but it is tinkering that will wreak unfairness on pensioners, because this is dependent purely on the arbitrary date of 6 April 1997. That is eroding and diluting the pensions promise that the Bill and the fund are meant to be offering people. I commend my amendments to the Committee.

Malcolm Wicks: I shall not rise to the nonsense that we have just heard, the constant attempts by Her Majesty's loyal Opposition to talk down what I firmly believe will one day be seen as a major social policy innovation in this country, which will bring much security to people in occupational pension schemes.
 The Bill's provisions allow for indexation to apply to compensation derived from or rights attributable to pension service on or after 6 April 1997. That is based on the requirement on schemes to provide limited price indexation as contained in the Pensions Act 1995. As a result, all pension scheme and pension credit members will receive indexation capped at 2.5 per cent. on the PPF compensation for the pensionable service from 6 April 1997. Restricting the indexation in that way ensures that the fund can better protect its liabilities and plan ahead financially. In addition, we do not think it appropriate that the PPF should pay indexation prior to 1997 when that is not a requirement for all pension schemes. Providing indexation increases prior to 1997 could also result in some members receiving a level of PPF compensation in excess of the level that would have been provided from their scheme, and that is hardly the intention of the PPF. That would be inconsistent with our principles. 
 We need to strike a balance between affordability, protection against moral hazard and the provision of a meaningful level of compensation. The PPF is being set up to provide adequate protection for individuals who face losing some or all of the pension entitlement, not to provide compensation that attempts to match scheme benefits or even offer more. Let us remember that the schemes we are talking about have gone bust. Government amendments Nos. 507 and 508 are 
 technical amendments, and that is why I moved amendment No. 507 formally. 
 The hon. Gentleman quoted a range of commentators. Perhaps his quotations were selective—I do not know, but they all denigrated what we are trying to do. I am not generalising, but when I read the remarks of some pension commentators in the broadsheets I find them less accurate than the words of football reporters who write about the latest antics at Chelsea football club in the tabloid newspapers. 
 Amendment agreed to. 
 Amendment made: No. 508, in 
schedule 7, page 208, line 12, at end insert— 
 '(3A) Where paragraph 25(3) (compensation cap) applies to restrict the amount of periodic compensation under one of the paragraphs mentioned in sub-paragraph (1), the amount mentioned in sub-paragraph (3)(a) of the paragraph in question is attributable to post–1997 service and pre–1997 service in the same proportions as the amount so mentioned would have been so attributable had paragraph 25(3) not applied. 
 (3B) Where a portion of periodic compensation under one of the paragraphs mentioned in sub-paragraph (1) has been commuted under paragraph 23— 
 (a) for the purposes of sub-paragraph (2), the definition of ''underlying rate'' in sub-paragraph (3) applies as if the reference in paragraph (a) of the definition to the amount mentioned in sub-paragraph (3)(a) of the paragraph in question was a reference to that amount reduced by the commutation percentage, and 
 (b) that amount (as so reduced) is attributable to post–1997 service and pre–1997 service in the same proportions as that amount would have been so attributable had no part of the periodic compensation been commuted. 
 (3C) In this paragraph— 
 ''post–1997 service'' means— 
 (a) pensionable service under the scheme on or after 6th April 1997; or 
 (b) rights which are derived (directly or indirectly) from rights attributable to pensionable service on or after that date; 
 ''pre–1997 service'' means— 
 (a) pensionable service under the scheme before that date, or 
 (b) rights which are derived (directly or indirectly) from rights attributable to pensionable service before that date; 
 ''the commutation percentage'', in relation to periodic compensation, means the percentage of that compensation commuted under paragraph 23.'.—[Malcolm Wicks.]

John Robertson: I beg to move amendment No. 438, in
schedule 7, page 208, line 15, leave out paragraph 29.

Win Griffiths: With this it will be convenient to discuss Government amendment No. 486.

John Robertson: Excuse me if I sound a bit hoarse; I was shouting at my football team on Sunday.

David Cairns: It did not do them any good.

John Robertson: Like the Minister, they did not listen to me. I will have another go.
 The amendment mentions paragraph 29, which would allow the board of the PPF to reduce the indexation rate both for pensions in payment and for pensions for deferred pensioners, including those who were active members when the scheme was wound up. 
 Paragraph 12(4), in the case of active members, and paragraph 17(4), in the case of deferred members, say that, during the period between the beginning of an assessment period and the date when a pension is drawn—that is, the period when the pension remains deferred—the deferred pension will increase by 5 per cent. or the retail prices index rate. 
 Paragraph 29 allows the board to change—that is, reduce—the 5 per cent. ceiling should circumstances so require. Paragraph 28 says that pensions in payment increase at 2.5 per cent. or RPI. Paragraph 29 allows the board to reduce the 2.5 per cent cap, too, but the PPF should be kept adequately funded at all times, so circumstances should never require that. In any event, a 5 per cent. ceiling should be the lowest acceptable cap for all purposes connected with the PPF. 
 Will the Minister comment on why the PPF would want to change the ceiling other than to lower it, possibly if—I can think of no other reason—the fund is running low? Is that fair? Does he not agree that a real indexation, fair to all, is required, and that if paragraph 29 is removed that will be achieved? Where is the confidence in the scheme that we talked so much about earlier? 
 We have now taken care of the 100 per cent. and have reduced it to 90 per cent, we have got rid of two-thirds and made it 50 per cent., and now we are talking about the possibility of reducing a cap figure to whatever the PPF requires, depending on how much money there is in the fund. [Laughter.] I would ask the Minister to look at the issue as a serious thing. It could be a matter of eating or not eating for some families, particularly in constituencies such as Glasgow, Anniesland, where there is a high degree of poverty, and a great number of pensioners. As I have told the Minister, there are about 18,000 over-60s in my constituency. If those people's pensions had gone bust—in which case a lot of them would not have pensions—they would be in dire straits. I still accept that the Government are doing a good job in relation to the PPF, but there are issues to consider, and I ask the Minister to address them.

Malcolm Wicks: I commiserate with my hon. Friend on his football experiences over the weekend. I was similarly disappointed; if only the referee had obeyed the rules and blown the final whistle after 70 minutes, instead of going on for another 20, we would have beaten Chelsea football club. That is becoming a theme this afternoon.
 My hon. Friend's amendment would prevent the PPF board from reducing or increasing the percentage levels of revaluation and indexation as part of PPF compensation. That would result in the PPF board being unable to make appropriate decisions regarding the levels of compensation that it can provide. It could also have an adverse effect on the pension protection levies imposed on pension schemes. 
 The provisions in schedule 7 enable the board to increase or reduce the percentage levels of indexation, as we discussed earlier, and revaluation on PPF compensation. That is because the board needs appropriate levels of flexibility to make decisions concerning the effective management of the PPF and 
 its finances. That includes the ability to reduce the percentage levels of revaluation and indexation on PPF compensation, should that be required. 
 Removing the board's ability to reduce those levels could have an impact on the pension protection levies, because the board may need to reduce its liabilities in response to economic or financial pressures. Without the flexibility to reduce the levels of indexation and revaluation, the board would need to increase the amount of pension protection levies imposed on pension schemes. That would place an additional burden on all pension schemes required to pay the pension protection levies. 
 However, we do not expect the board to take lightly a decision to reduce the levels of indexation or revaluation or increase the pension protection levies; I want to emphasise that, not least to my hon. Friend. We are including the provision in the Bill because of the danger one day of very extreme circumstances occurring. I believe that such circumstances are very unlikely, but it is responsible for us to include such a provision. 
 We have heard—not from my hon. Friend, but from the Opposition—a number of nightmare scenarios in which benefits could plummet down and down. However, in drawing up the scheme, we have considered the rights that people should have, and have been as generous as possible—but not too generous—in looking at the likely costs and the likely levy and in allowing for the assets that would be taken over. I assure the Committee that we are convinced that we have a workable and fundable scheme. 
 Although provisions have to be put into the Bill to be prudent and sensible, we do not anticipate the difficult scenarios that my hon. Friend has mentioned. He is a mighty champion of pensioners in his constituency, and of course we want to avoid difficult circumstances for people, or perhaps their widows, who depend on their pensions. I hope that I can reassure my hon. Friend. The words of Don McLean from the great classic ''American Pie'' come to me: we do not want to chevy to the levee and find that the levee was dry. 
 I hope that I have said enough. I might have sung those lines, but I would have been called out of order. I hope that I have assured my hon. Friend about our intentions and that he will consider withdrawing his well intentioned amendment.

John Robertson: I thank the Minister for that; I will try not to be one of the good ole boys drinking whiskey and rye.
 Although I accept that the Minister is being honourable and I believe what he tells me, I have to say that the Minister will not always be in his position. God forbid that the Opposition should get in; them I could not trust. That leaves a suspicion over the figures that we are using. Although I accept that this Government can be trusted to look after pensions, I may not be able to trust others.

Malcolm Wicks: On that point about future scenarios, did my hon. Friend take any comfort from
 the fact that the hon. Member for Eastbourne talked with some confidence about Labour's third term? Should he not have heeded my usual warning on these occasions: we should never confuse confidence with complacency?

John Robertson: I thank the Minister for that; he says it all. I will be out working hard with many colleagues, and not just during the election; I have to be selected for that election first, so there is a lot of work to be done before then.
 I want to put it on the record that my concern is not about what happens in the short term but in the long term, but I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Amendment made: No. 486, in 
schedule 7, page 208, line 30, leave out sub-paragraph (6) and insert— 
 '(6) A determination under sub-paragraph (2)— 
 (a) has effect in relation to future increases under paragraph 28 only, and 
 (b) may be expressed to have effect— 
 (i) in all cases (whether the entitlement to the periodic compensation first arose before or after the date the determination is made), or 
 (ii) only in cases where entitlement to the periodic compensation first arose on or after a date determined by the Board.'.—[Malcolm Wicks.]

Steve Webb: I beg to move amendment No. 6, in
schedule 7, page 208, line 37, leave out paragraph 30.

Win Griffiths: With this it will be convenient to discuss Government amendments Nos. 487 to 489.

Steve Webb: I shall try to work in Simon and Garfunkel in the next five minutes.

David Cairns: ''The sound of silence'' would be a good start.

Steve Webb: I guess I asked for that.
 The amendment goes to the heart of what the PPF is about and it goes to the heart of what it should not be about, which is that when the going gets tough the Government get going and say, ''Right. We are not going to pay out what we thought.'' 
 The Minister might be in some confusion as to whether this is an insurance scheme or not, but the Secretary of State is not. He is on record repeatedly as saying that one can insure one's car and one's holiday, so why cannot one insure one's pension? He clearly sees it as a form of insurance and that is the way that it is being sold to the public. The presumption is that one pays one's levy and then one's pension is protected to 100 per cent. if one is retired or to 90 per cent if one is not. We know that it is 100 per cent. of something quite specific, which is not quite what people expected, but we understand the reasons for that. 
 However, the fact is that it might not be 100 per cent. or 90 per cent. Paragraph 30(2) of schedule 7 lists all the places in the schedule where the 90s and the 
 100s appear and it basically says that every time that one sees 90, one could read any number whatever less than 90, and that where one sees 100, it could be anything that one likes as long as it is less than 100. That is a power that we do not want in the Bill. The Government have circumscribed the position of the PPF. 
 What can the PPF do if it is in financial difficulties? The first thing that it can do is to stick the levy up. However, there is a cap on that. The PPF can only increase the levy by, I think, 25 per cent. It can only put the levy up by a certain amount from one year to the next. If money is looking tight or if an industry goes down, we might be talking about quite serious situations. The big hits on the American equivalent of this fund have come when whole industries have been hit. One can imagine a September 11-type incident that hits an entire industry. If it were an industry that was struggling and on the brink of insolvency, a large number of firms could go down at the same time, and the fund would not necessarily have time to sort its finances out to deal with them. Therefore, the levy can be increased, but that might not fill the gap. Indeed, increasing the levy substantially year after year might not fill the gap. In any case, the Government have told us time and again that they do not want the levy to be much higher, because it will cause defined benefit schemes to shut. 
 To give one example from this morning's deliberations, one amendment was rejected because it would have added £100 million to the £300 million raised by the levy—in other words, a third. The Government said, ''No, that is too expensive. That is getting the balance wrong between cost and benefit. You will kill the goose that lays the golden egg.'' Yet, the levy can increase by 25 per cent. in one year and then another 25 per cent. the next year. That ain't going to happen; that will not be the way that the PPF sorts out its problems. If the Government are right that if the levy is too high, the thing that is trying to be insured is killed, that would be crazy. It would be stupid to have spent all of these many happy hours trying to protect something that in a few years' time does not exist any more because it costs too much to run. 
 In reality, if the PPF gets into serious financial problems, as the American scheme has done, merely jacking up the levy will not happen. There is a limit to how far the levy goes. Even if there were not a cap in the Bill, there would be a political, practical limit on the levy. Therefore, if one cannot get the money from the levy, what is the second way to do it? Where one cannot get one's revenue up by more than a certain amount, one cuts back on the benefits. I welcome the fact that the hon. Members for Hamilton, South and for Glasgow, Anniesland (John Robertson) have added their names to this amendment, because it is in the same spirit as an earlier amendment that they tabled. 
 The provision in the paragraph gives the board powers to get rid of the indexation. We are uneasy about that, as are the Minister's own colleagues. We recognise, or grudgingly accept, that there is a bit of a margin going on. I suppose that, if something has to be 
 squeezed, indexation is a slightly softer option than cutting into the underbelly of the benefits. It is all money. At least one has the money, which might not rise as quickly as it might otherwise have done or might not be revalued as quickly as it might otherwise have been. However, this paragraph states that it might not even be there. Pensioners in payment might have their pensions cut. That is what this paragraph allows for. A PPF pensioner—I do not know whether they will call themselves that, or whether they will have something like a special tie—might be drawing a pension paid by the PPF, and the PPF might get into financial difficulties and, after it had done everything that it could on the levy, inflation and revaluation, under this paragraph the Secretary of State might say, ''Sorry folks, but we are going to cut your pensions by 10 per cent.,'' or 100 per cent., because there are no limits on the powers in this paragraph; they can do what they like. There will be an insurance scheme that might not pay out; the Government will have been collecting premiums adding up to hundreds of millions of pounds a year, but they will reserve the right not to pay out anything for them. It is incredible that they have taken that power. 
 What happens if that power is taken out of the Bill? If the PPF cannot raise enough money through its levy and by having—at worst—tweaked the benefits, the Government should act as a lender of last resort. There are good precedents for that sort of operation. When there was a big terrorist explosion and lots of insurers ran around saying that they would not insure anybody because the catastrophic risk of terrorism was too great, the Government said, ''We want an insurance market that works, so we will be the insurer of last resort; we will cover the minuscule chance of a catastrophic event.'' Therefore, the Government are an insurer of last resort on terrorism. That provides an important analogy. The Government are the insurer of last resort of the PPF not for predictable day-to-day reasons but for the slim chance of a catastrophic event. 
 The American scheme has run into deficit, the level of which is 11 times the value of the annual premiums. That is a massive deficit. Therefore, this is not fevered speculation about something that will never happen; we have seen that it happens. The question is, what should be done? We are not suggesting that the money should be non-repayable. The Minister may say, ''A lot of the taxpayers who are being asked to bail out the PPF do not have company pensions so why should they support those who do?'' That is why we are not saying that this should be a grant or a gift. It should be smoothing money—cash-flow assistance—so that the PPF can have a much longer time horizon in which to sort out its affairs by getting the levy to a more credible level. That would give it the chance to have a few good years and to get into a better position. 
 What do taxpayers lose by this promise? They potentially lose the interest, but they might not even lose that, because one can envisage a scheme of this sort where in the end the PPF pays back the interest as well. We are arguing not that this cannot be made to work over a generation or two, but that there might be very bad periods. In the good times there will be the smoothing money, but the taxpayer will get the money 
 back—and they might get it back with interest. Therefore, this guarantee might create no long-term cost to the taxpayers. 
 There is a simple reason why the provision that I am describing is not in the Bill and paragraph 30 is; the Chancellor does not want it on the Government balance sheet because it would be regarded as a public sector liability, and it might muck up his borrowing rules. That is wrong. The Government will be guilty of mis-selling if they say to employers and pension scheme members, ''Pay us your contributions and we will protect your pension, but we might not.'' What good is rainy-day insurance that says, ''Well, here's your insurance for a rainy day but if it rains really hard we will not pay out''? 
 The paragraph undermines the purpose of the Bill. The Minister will say that this will never happen; he will say that the right circumstances are so extreme and unlikely to occur that the Government will never use this reserve power. If that is the case, they should take it out of the Bill. Perhaps it is included because they want to use it and rip up their insurance promise. This is fundamental. We are committed to this measure not being part of the Bill.

Nigel Waterson: I agree with the hon. Gentleman. This is an important part of the Bill. Speaking for the official Opposition, I am torn as to whether we would support him if he sought to divide the Committee. On balance, we would not, for reasons that I will explain.
 If the provision is to remain, it should be put behind a piece of glass with the words, ''Break glass in emergency'' underneath it. That is roughly the assurance that the Minister will give us in his response. This power must be used only in the most exceptional circumstances. We, the official Opposition, are becoming so concerned about how the PPF is being set up—and we are not the only ones—that we are torn between removing it altogether, as the amendment would do, and leaving it in, on the basis that the glass might have to be broken in case of emergency because of the way in which the PPF is set up in its early years. 
 There are, if one can visualise it, two families living side by side in identical houses, working for identical, or similar, companies, with similar pension schemes with similar terms. One family, as the hon. Member for Northavon (Mr. Webb) said, is a PPF pensioner and the other is a pensioner with the scheme and company that he worked for still intact. As those families respectively draw the pension and the compensation from the PPF, we begin to see a picture in which their lifestyles diverge over the years, perhaps because of the cap, or the other changes that we have discussed, such as indexation and so on, and perhaps, most cataclysmically, because of a Government decision to pull the plug on payments, or reduce them dramatically. Let us be in no doubt that it is a Government decision to give power not for the board, but for the Secretary of State. Some of those pensioners will end up where they started when the pension scheme and the company failed. That is a real concern, because if we as a Parliament, and the Government, are trying to sell the PPF to the outside world as something that will restore 
 confidence in occupational pensions, the small print will be a problem—unless there is an attempt to brush it under the carpet, to change metaphors mid-stream. 
 This is a far-reaching power. I endorse what the hon. Gentleman said about the levy not being sufficient to get the Government out of difficulties. There is, as he said, a cap on the levy, and a short-term self-imposed cap where there is a flat-rate levy at the beginning. Then there are also the problems that we discussed, which some of the pension lawyers mentioned, concerning schemes that are tottering along waiting to collapse into the arms of the PPF when it is set up. I repeat that the PPF will be at its most vulnerable in its early years. I have always believed that. Presumably there is some wisdom in the fact that the US Pension Benefit Guaranty Corporation did not pay any benefits for four or five years after it was set up; presumably it did that to build up a cushion against the claims that fell on it in due course. 
 The hon. Gentleman was also right in looking across the Alantic at the $11.5 billion deficit that the sister fund has already developed. All the pressure will be to reduce, possibly dramatically, the benefits and compensation that will be paid. It all comes back to the old question of proper funding. If a comparison is made—as we have done—of the different regimes that apply in different countries, it is apparent that at one end of the scale there is an extremely robust set-up in the Netherlands, where all the substantial schemes were 110 per cent. funded at the end of 2002, which is something of an achievement, given the outside circumstances. Even then, the Dutch regulator was complaining bitterly that the funds should have been 160 per cent. funded in the good years and not only 150 per cent. When funding requirements are at that level, there is no need to talk about a PPF or whatever the Dutch might call it—if they had one. There is no insurance scheme if, indeed, we are of the mind that we are talking about such a scheme. The Minister is neither nodding nor shaking his head.

Malcolm Wicks: I am bored.
Mr. Waterson rose—

Steve Webb: He said, ''It's the power of the board.''

Nigel Waterson: Well, there we go.
 At the other extreme, the United States schemes are only 77 per cent. funded on average and the Pension Benefit Guaranty Corporation incurred record losses. Various countries have different funding regimes. The United Kingdom has a moderate funding regime. As we heard, it has been diluted twice by the Government. As yet, we do not have an insurer, which is a large political problem. 
 The most lenient funding regime—the US regime—has been made even more lenient as a result of the recent Senate vote. The PBGC would have to quadruple its premium income from $0.8 billion to $3.2 billion a year to correct its negative cash flow. That would raise the effective premium rate from 0.05 
 per cent. of liabilities to 0.2 per cent., which, by a bizarre coincidence, would bring it straight into line with Germany and Sweden. On an equivalent basis, that would put the average annual cost of the UK's fund at about £1.5 billion, not the £300 million or £350 million so often quoted by the Government. That shows the possible substantial extra burdens that the scheme might place on industry beyond those that the Government claim will be placed on it.

Adam Price: To reduce some of the burden on private sector schemes, what does the hon. Gentleman think of the suggestion that public service pension schemes that the Government stand behind should contribute the flat-rate levy to the PPF?

Nigel Waterson: I have certainly heard that suggestion. While not endorsing it on behalf of my party—at least at the moment—there is a strong feeling in the country that public sector pensions have led a charmed existence compared with the private pension sector. It all comes back to funding. As has been said, if there were an enormous downturn in the fortunes of the PPF, certainly in its early days, that could not be addressed by the levy, even without the cap. So how could it be addressed? The only significant way to regulate it is by reducing benefits.
 I come back to where I started. I have enormous sympathy with the amendment because removing the provision would rightly put considerable pressure on the Government to think through what they are trying to achieve. I take the point about Government backing. There seems to be a conspiracy of silence in America in that everyone accepts that, if the PBGC were in danger of failing, the Federal Government would have no choice politically but to step in. Indeed, if the PPF were not an insurance scheme or a pension scheme, but a political construct, we would assume that there would be a political imperative to step in to stop it going bust. That being the case, as a responsible official Opposition with every anticipation and expectation of becoming the Government in due course—unlike the Liberal Democrats—we suspect that we need paragraph 30 behind the glass, ready to be broken in an emergency.

Gregory Barker: I am listening carefully to my hon. Friend. Does he accept that it is not just the fund going completely bust that would cause concern? Obviously, there is a spectrum of scenarios whereby the cover against likely claims against the fund could break it, which would impinge on public confidence in the fund. Perhaps he could share the American experience with us, whereby the cover looked increasingly thin and confidence in the pension system had waned without the fund going bust.

Nigel Waterson: My hon. Friend makes a fair point. My impression was that, broadly speaking, people in America were fairly relaxed about it. The Minister has often referred to specific people he met on what was, no doubt, many visits to America to find out what was right and wrong with their system. Everyone recognises that, at the end of the day, the Government would step in. There is a political dimension, not least because the figures for the
 PBGC are dominated by airlines and steel companies. All too often there must be phenomenal pressure if a large employer in a particular town or state is in danger of going bust unless something can be done about its pension fund deficit. That is not a situation that I want replicated here.
 The Government cannot make up their mind. On the one hand, they are adamant—the Minister said so more than once, even today—that they want the PPF to have a life of its own, to get on and do its own thing once it has been set up. On the other hand, we keep bumping up against provisions such as paragraph 30, by which the Government have the right to pull the plug. I think that they are suffering from an advanced case of schizophrenia over their real role vis-à-vis the PPF. They must make up their mind about which solution they want. So, with due apologies to the hon. Member for Northavon, I do not think that, on balance, we can support his amendment. We do, however, have enormous sympathy with it because it does deal with an important part of the Bill.

John Robertson: The hon. Member for Eastbourne made valid points on amendment No. 6, which my hon. Friend the Member for Hamilton, South and I also tabled. The hon. Member for Northavon also made some good points.
 I am in a bit of a quandary. If the Minister will not agree to get rid of paragraph 30, which I am sure he will not, I look to him at least to consider its wording, which is a bit ambiguous. It starts off: 
''The Secretary of State may, on the recommendation of the Board, by order amend''.
 Does that mean that every time that the board wishes to do something, it has to get the Secretary of State's agreement? If it does not, then that is what I want added. Paragraph 30(4) says that the board will 
''consult such persons as it considers appropriate''.
 I would be a lot happier if I knew what that meant. I am probably quite thick, and I am certainly not a lawyer.

Nigel Waterson: The two are not mutually exclusive.

John Robertson: I do not particularly like lawyers. I once said that hanging was too good for them, but I take that back: it is perfect for them.
 The sub-paragraph is ambiguous and I want something with a bit more meat on it. I want to know that the Secretary of State has some control over what the board can do. I also want some protection. The sub-paragraph should say that if a catastrophic event occurs, those already in the fund will not be punished for it. That has to be considered because people should be protected. I await the Minister's response with interest. I have reservations, but I am sure that he can persuade me to side with him.

Bill Tynan: The saying, ''When you have a hole, take the shovel away'' springs to mind. As the co-accused, I want to make a few points. The amendment is in my hon. Friend's name as well as mine, so we are both to blame.
 Paragraph 30 to an extent negates the PPF. It is a concern that the funding will come not from the Government, but from companies. The levy has to be 
 such that it does not damage companies. There could be a situation in which there were enormous problems for the fund and the people it benefits. Unless there is a mechanism whereby the board can tell the Secretary of State, ''Look, we have an enormous problem that has to be dealt with'', it could have to take decisions that might be unpalatable for those receiving pensions. 
 Paragraph 30 builds in an insurance policy for the Government. If the board comes to them with a problem, they can do a number of things, all of which are included in the paragraph. They could also take another avenue and say, ''Yes, we have to help maintain the fund in order to make sure that its beneficiaries do not lose their pension.'' A glass case provision—one that would allow us to take an axe to the glass if the unlikely event that concerns us occurs—is vital. If we do not have such a provision, we allow the board to take decisions for the beneficiaries of the fund. 
 We will not press the amendment to a Division, although the paragraph needs further discussion. My hon. Friend said that the Minister should look carefully at it. I hope that, under the circumstances, we can reach an accord on it.

Malcolm Wicks: Two concerns have been articulated. The first was expressed by my hon. Friends the Members for Glasgow, Anniesland and for Hamilton, South, who, perfectly properly and understandably, are concerned that pension rights should be guaranteed whatever the circumstances. They are, I suppose, understandably suspicious of anything that seems to negate that. I hope that I can reassure them. Much of the argument comes down to whether it makes sense to include provisions for extreme circumstances, whatever one's objectives. We would argue that that is prudent, but obviously it gives rise to the suspicions expressed by my hon. Friends. I hope that I can allay their fears.
 The second concern was expressed by the hon. Member for Eastbourne, who, sadly, again talked the measure down, but that has been the story of social reform for 200 years; it has happened whenever anyone has come to Parliament with the temerity to suggest, for example, that child labour should be outlawed or, more recently, that we should establish a national health service. The opponents of advance have always said, ''This'll be a catastrophe; it can't work'', and have come forward with a host of reasons why that would be the case. Much of what the hon. Gentleman said falls into that category.

George Osborne: For the historical record, it was a Conservative Government who, because of Lord Shaftesbury, outlawed child labour, and it was a Conservative Government under Stanley Baldwin who introduced the state pension.

Malcolm Wicks: It was the mentor of the hon. Member for Northavon, Lloyd George, who introduced the old-age pension: let us get our history right. The Conservatives voted against the national health service on Second Reading, which is, perhaps, a precedent for the Pensions Bill.
Gregory Barker rose—

Win Griffiths: Order. The Bill is not about what type of pension was introduced by which Government. Let us get on with the amendments—[Interruption.]

Malcolm Wicks: Saved by the bell.
 Sitting suspended for a Division in the House. 
 On resuming—

Malcolm Wicks: I feel mellower now, because my hon. Friend the Under-Secretary bought me half a hot cross bun with my cup of coffee. I wanted a full one, but he capped it, no doubt because of a 50 per cent. survivor's benefit.
 I was about to make a point about the contribution of the hon. Member for Eastbourne. He talked about a scenario with two homes, one beside another, with one person on a full company pension scheme but the other on a substandard PPF benefit. That was when it became clear that he was overdoing the argument; his two homes argument did not compete with Disraeli's two nations as an important analysis. 
 When I met Mr. Jackson, a steelworker in Washington, he and Mrs. Jackson told me in a dignified way about how pleased they were that the Pension Benefit Guaranty Corporation was there for them when Bethlehem Steel, against all the odds, failed. He lost some health care rights, but thought only about how much worse his situation would have been had American legislators not had the foresight in the mid-1970s to legislate for something resembling the PPF.

Adam Price: On American legislation, is the Minister aware that three Bills have been passed by the House of Representatives and the Senate in the past few months to bail out the Pension Benefit Guaranty Corporation? A process of negotiation is taking place on pension reform measures, particular in the Senate.

Malcolm Wicks: I am broadly aware of developments in the United States. When I was in Washington, I had the honour of being asked to address a Senate sub-committee during a hearing on the Pension Benefit Guaranty Corporation, so I am familiar with those issues.
 The hon. Member for Northavon has a beguiling technique—I can say that now, armed with my hot cross bun. He paints a ''what if?'' scenario, takes a new proposal and says, ''What if this happened, what if this extremity occurred? What if a real tragedy, a nightmare scenario were to unfold?'' We then add on and on to that, and we say, ''In those circumstances, things would be dire.'' 
 We have been prudent and sensible in our actuarial calculations of what could happen in the real world when making our estimates about the proper funding of the PPF. If the hon. Gentleman were to ask me what would happen in the most calamitous and terrible circumstances, I would say that of course there would be difficulties, and perhaps in those extreme circumstances benefits would have to be reduced. But in extreme circumstances all sorts of 
 social institutions would be affected, and I do not want to say much more about that. 
 At the end of the day, the Committee will have to compare the hon. Gentleman's sometimes slightly absurd ''what if?'' notions with our translation into concrete reality of the dream about pension rights, and our assurances that it can work, and that we have calculated the funding for it and the known risks. Committee Members will have to make that judgment. It is not our intention to set up a pension protection fund, to ask hon. Members to vote for it and communicate its virtues to the British public, while expecting that in a few months' or a few years' time we will be cutting benefits to catastrophic levels. I have not become Pensions Minister to see that happen. The only argument is whether, despite my assurances, it is right to include in the Bill an in extremis measure for flexibility in dire circumstances. On balance, I think it is right to do so. 
 I have never been an anti-Liberal—

David Cairns: I am.

Malcolm Wicks: My Parliamentary Private Secretary is, which is why we are a balanced team. I have never been a wild anti-Liberal, but I sometimes think that being a Liberal Democrat means never having to be consistent. The hon. Member for Northavon tabled several amendments that would have meant our being more generous, despite the fact that for the first time the Bill will introduce a protection fund, or an insurance fund—I am just trying to get the hon. Member for Eastbourne going.
 That is a perfectly reasonable argument; some of my hon. Friends would say that instead of 90 per cent. the percentage should be 100 per cent., and instead of 50 per cent. it should be 75 per cent. The hon. Member for Northavon is in the camp that says we should be more generous, but then forgets that and says that the levels of benefit being proposed may never be paid because of the way that the measure is established. If the hon. Gentleman doubts that we can fund the pension rights that we propose, why does he say that we should be more generous? His argument is inconsistent. 
 The power is sensible; the flexibility in the relevant paragraph could be used by the board to propose that pension rights should be increased. I do not suggest that that will happen, but in favourable circumstances the power could be used to increase the 90 per cent. level, should the board feel able to support that, and as long as the Secretary of State agreed. 
 Our approach to the arithmetic of the pension fund is right in terms of the levy, of how we have estimated its likely level in the first year or so, and of the money that we will we need to raise—£300 million in the first full year after the interim year. I may have said £380 million this morning when asked about a certain scenario, but it should have been £300 million. The levy can be increased by 25 per cent. in any one year, and can be increased again and again up to 100 per cent. of the original amount. That brings in flexibility. Compare that with the situation in the United States, where the levy has not been increased since 1991—in large part, I think, because the US legislators said that 
 the levy could be only increased if the Pension Benefit Guaranty Corporation went back to Congress; only Congress could increase the levy. 
 We have learned lessons from that; we think that that would be an unnecessary inflexibility. The board will be able to increase the levy. We talk a great deal about the levy, but we should recall that, in time—sadly, there will be schemes that go bust—assets may be taken over and invested, and there will also be that source of income. Although we hope that it would not have to be used for this purpose, there is also the power to borrow commercially, if at stages in the economic cycle that seems necessary. 
 We all understand that the Pension Benefit Guaranty Corporation is in some difficulties. We are not American legislators, and I am sure that they are not complacent, but those difficulties should not be exaggerated. Our understanding is that the Pension Benefit Guaranty Corporation is 75 per cent. funded on a buy-out basis, which many would say is a reasonably healthy position for a scheme at this point in the economic cycle. It would have been in an even stronger position had it been able to raise the levy in a more flexible way, without having to go to Congress. 
 In drawing up the proposals, we have taken a lot of account of past US experience. For example, we are aiming to give greater importance to the risk-based element of the levy, which from memory I would say is only 25 per cent. of the total levy in the United States. The risk-based element will be at least 50 per cent. here, and perhaps a lot more. We are learning from the experience in the United States about what does and does not work. 
 I can reassure my hon. Friends the Members for Glasgow, Anniesland and for Hamilton, South about the potential for a reduction in benefits. I have said words about that already, to try to reassure them that that is not our intention; we have put in an in extremis clause. 
 There are limits on the powers of the board to make any reductions: it would have to consult, and reflect on that consultation. Perhaps more importantly, it would have to get the approval of the Secretary of State before any reduction could occur. The Secretary of State would not act with a free rein to reduce compensation; he would be approving what the board did. He would have to listen to the board. In such extreme circumstances, the Secretary of State would not give way lightly, although I guess that that would depend on the Secretary of State. Regulations would also have to be passed under the affirmative procedure in the House before any reductions could take place. I hope that that will reassure my hon. Friends.

Nigel Waterson: I do not quite follow the Minister's logic. On one hand, he criticises the Americans because they have to go to the legislature for an increase in the levy; on the other, he claims credit for this system, which would allow the Secretary of State to decide about cutting benefits. Any Secretary of State would feel constrained—for example, in the run up to a general election campaign—about reducing the
 rate of benefits, even if all the other indicators suggested that that was the right thing to do.
 The Minister was rather relaxed about increasing the levy and explaining how it could be increased almost exponentially. However, there are natural limits on the levy, such as how much the market can bear, and how much companies that are still going strong can bear to pay.

Malcolm Wicks: I apologise for accusing the Liberal Democrats of never having to be consistent; clearly it is a more widespread contagion. The hon. Member for Eastbourne has spent much of today waxing eloquent about us being too mean with PPF benefits, but when he advocated that the benefits should be more generous he said nothing about the costs to the industry or the scheme, or about the danger that we might be over-egging the final salary pudding. Now that I am saying that there will be flexibility to increase the levy—a lesson that has been learned from across the Atlantic—he wants to talk about costs.
 I am never quite sure where the hon. Gentleman is coming from; he might want to refer to one of his briefing notes so that he can tell us. Is he saying that we should be piling more costs on the scheme to increase benefits, or that we should never have the flexibility to increase the levy? There is a difference. We should give the board the flexibility to increase the levy. That is important. It is absurd to suggest that the board will suddenly decide that it must increase the levy by X per cent. and then have to say, ''Oh dear, we must return to Parliament and there will have to be the full panoply of getting parliamentary approval.'' 
 There is a difference between that and the dire circumstances, which I do not think will ever occur, of the Webb-Northavon scenario—the ''Bridge over Troubled Water'' scenario—in which the board says, ''I'm sorry, we've got to reduce benefits.'' It would be appropriate to get the approval of Parliament on people's social security generically and their benefits. I hope that I have reassured Committee members. I may not have reassured Opposition spokesmen, but, as I say, there is some confusion about the consistency of their argument.

Steve Webb: I am sure that we would all rather be ''Homeward Bound'', but before we go we should talk about this central amendment. The Minister's response must be the feeblest that we have heard. It does not stack up at all.
 It has been suggested that the scheme benefits that will be paid out on a routine, day-to-day basis might not, in some circumstances, be generous enough to unmarried partners, for example. If I remember rightly, the Minister asked us to withdraw that suggestion because he wanted to reflect on it because he saw some merit in it. So, our suggested marginal improvements to the scheme that the Government said were worth thinking about are apparently no good. They now tell us that the suggestion is inconsistent with querying the reserve power of the Government to rip up the entire promise. Where is the inconsistency? One is a day-to-day occurrence of the everyday operation of the fund; the other is, we are all agreed, 
 an extremist provision. As the Minister well knows, there is no inconsistency. 
 The Minister says that we are talking about an unlikely set of circumstances—in fact, he said that he did not think they would ever happen. Well, Hallelujah! If we are all agreed that they will never happen, we do not need paragraph 30, which exists because the circumstances might arise. It is because the circumstances could happen that the Government have written paragraph 30. It is not my fevered imagination, but the Government's that has ensured that the paragraph is in the Bill. The question is: how should the Government of the day respond if the circumstances do arise? 
 The hon. Member for Hamilton, South, who is momentarily my hon. Friend, was right first time. He was right when he added his name to the amendment and he was right to say, ''If you get to this point, the Government of the day should not have as one of their options the right to rip up the pay-outs.'' If this is an insurance scheme, the idea that the Government reserve the right to rip it up cannot be correct, and if that power is removed, the Government must do something else; they will not do nothing. The something else that they should do is to lend money to the fund. That is entirely reasonable and will not be at a huge cost to the taxpayer because, over time, we all accept that there will be good years, and nobody doubts that an insurance scheme can be run sustainably on a long-term basis. All we are trying to do is to tie it over during circumstances that the Minister says will never occur.

Malcolm Wicks: If the hon. Gentleman is saying that there could be circumstances, which we hope will not be common, in which the fund needs to borrow, the fund will be allowed to borrow commercially. Why does he object to that and why does he think that all taxpayers, many of whom are not members of final salary schemes, should do the borrowing? What is wrong with the commercial option?

Steve Webb: Because the taxpayer can do it cheaper. In my proposal, there is nil long-term cost to the taxpayer, because he lends money to the scheme and gets it back with interest. It is like the Government issuing a bond: when they issue a bond, they borrow money and promise to pay interest. In this case, they would lend money to the PPF and get it back with interest because the PPF has revenue-raising powers. In a given year, the Government are doing the equivalent of issuing a bond; there is nil cost in the long-term to the taxpayer because the Government get the money back with interest, whereas if the PPF has to do it commercially, the commercial banks will want their cut. The whole deal is more expensive if it is done through commercial borrowing than through the state. The state can do it cheaper, so it is more efficient. Given the Minister's position on the political spectrum, I should not have thought that he would say, ''Private good, public bad.'' Which is the most efficient? In this case, the private sector is more expensive than the public sector.

Nigel Waterson: Does the hon. Gentleman also agree that the fund is likely to want to borrow commercially precisely when its books look particularly dodgy?

Steve Webb: tw=.99wIndeed. The risk premium, especially if there is no Government underwriting of the scheme, might be significant. That money has to be found from somewhere, and if it is borrowed commercially, which is more expensive, the levy payers, who run the schemes that we want to keep going, end up paying for it. That is an unnecessary burden on the people who run the type of pension scheme that this whole exercise is designed to preserve. I find that very puzzling.
 We all know that if there were a crisis, perhaps concentrated on a geographical basis, the Government of the day would do that anyway. Would it not be better to do it in a measured, planned way, in the calm of a Committee Room now, than in a panicky response to local newspaper headlines when everything has gone horribly wrong and everyone is panicking saying, ''Something must be done''? Would it not be better to plan, in the unlikely event that such a situation would arise, for how it would work, on what terms borrowing would be possible, over what period and for what interest rate? It is better to think it through calmly than have to react to a crisis.

Bill Tynan: If the board finds it difficult to maintain funding for retired people, to whom does it go if we remove the involvement of the Government and the Secretary of State? Would the hon. Gentleman not agree that it would be better, even though the paragraph's conditions are severe, for it to go to the Secretary of State to clarify what can be done to avoid the sort of crisis that he paints?

Steve Webb: Absolutely. I agree that there should be such a provision. Removing paragraph 30 would be half of the deal; we must then insert a provision to cover what would happen if the fund is in trouble and cannot pay its pensions. The hon. Gentleman is right: we must specify what would happen, including the involvement of the Secretary of State, because he will be involved. The current Secretary of State is involved because he cuts benefits, and I do not think that we should give him that reserved power.
 On one hand, the Government parody the argument, saying that there is hysterical scaremongering on the issue, although they inserted the paragraph; we did not. On the other, they say that, in extremis, they might want to take the pensions away in part. We do not think that they should. 
 Question put, That the amendment be made:—
The Committee divided: Ayes 3, Noes 12.

Question accordingly negatived. 
 Amendments made: No. 487, in 
schedule 7, page 208, line 37, leave out from beginning to end of line 4 on page 209 and insert— 
 '30 (1) The Secretary of State may, on the recommendation of the Board, by order provide that any of the provisions mentioned in sub-paragraph (2) is to have effect as if a different percentage were substituted for the percentage specified in the provision on the passing of this Act (''the original percentage''). 
 (2) The provisions are paragraphs 3(4)(a) and (b), 5(3), 7(2), 8(3), 10(2), 11(3), 14(3), 15(3), 19(3) and 21(3) of this Schedule (percentage used to calculate periodic or lump sum compensation entitlement). 
 (2A) Subject to sub-paragraph (2B), an order under sub-paragraph (1) has effect only in respect of any period for which the Board has, under paragraph 29— 
 (a) reduced the maximum revaluation rate for the purposes of paragraphs 12(4) and 17(4) to nil, and 
 (b) reduced the appropriate percentage for the purposes of paragraph 28 to nil in all cases. 
 (2B) Sub-paragraph (2A) does not prevent an order under sub-paragraph (1) having effect to the extent that it provides for paragraph 3(4)(a), 11(3), 14(3), 15(3) or 19(3) (provisions where the original percentage is 90%) to have effect as if for the original percentage there were substitute a higher percentage.'.
 No. 488, in 
schedule 7, page 209, line 11, leave out 'Schedule' and insert 'paragraph'.
 No. 489, in 
schedule 7, page 209, line 20, at end insert— 
 '( ) The date specified under subsection (5)(b)(i) or (ii) must not be earlier than the date of the order.'.
 No. 490, in 
schedule 7, page 210, line 12, leave out sub-paragraph (3) and insert— 
 '(3) ''The admissible rules'' means the scheme rules disregarding, if sub-paragraph (3A) applies, the recent rule changes. 
 (3A) This sub-paragraph applies if the combined effect of the recent rule changes and recent discretionary increases is such that, if account were taken of those changes and increases in calculating the protected liabilities in relation to the scheme at the relevant time, those protected liabilities would be greater than they would be if all those changes and increases were disregarded. 
 (3B) In sub-paragraph (3A) ''the relevant time'' means the time immediately before the assessment period which begins on the assessment date'.—[Malcolm Wicks.]
 Schedule 7, as amended, agreed to. 
 Clause 125 ordered to stand part of the Bill.

Clause 126 - Postponement of compensation entitlement for the assessment period

Amendment made: No. 492, in 
clause 126, page 79, line 11, at end insert— 
 '( ) In subsection (1) the reference to ''normal pension age'' is to normal pension age, within the meaning of paragraph 31 of Schedule 7, in relation to the pension or lump sum in respect of which the entitlement to compensation arises.'.—[Malcolm Wicks.]
 Question proposed, That the clause, as amended, stand part of the Bill.

Steve Webb: I have a short and simple question. The clause provides that entitlement may be delayed in prescribed circumstances. I am interested to know which circumstances the Government have in mind
 and whether such a delay would be exceptional or quite routine.

Nigel Waterson: To some extent, the hon. Gentleman has stolen my thunder, in that I wanted to ask the same question about circumstances, but I shall range a little beyond it.
 Is the clause designed to mirror the provisions that we have already dealt with on deferring the taking of the state pension? We are back with the ''black cat in a dark room'' syndrome. Is the clause related to new clauses that may or are likely to be tabled later to deal with a cliff-edge situation? [Interruption.] Yes, there seem to be several cliff edges, as the resident expert, the Minister, has pointed out, so let me specify which one I mean. 
 I am thinking of someone who works for Tesco, retires, wants to work part-time and goes to work down the road at Asda. Is there a read-across in such circumstances? It is difficult to know because, yet again, we are in the murky, distant land of regulations that we have not seen in draft and of circumstances that have not yet been explained, let alone prescribed. I am sure that we are all cheerful because we have waved a temporary goodbye to schedule 7, but some important issues arise on clause 126.

Chris Pond: The hon. Member for Eastbourne emphasised the fact that the Committee is now in a cheerful phase, and I feel that I have some responsibility for that, having ensured that my hon. Friend the Minister for Pensions had his bun during the tea-time voting break, which left him neither hot nor cross, but cool and measured in his approach.

Malcolm Wicks: I only had half.

Chris Pond: My hon. Friend complains that he had only half, but it was the half with the cross.
 Clause 126 provides for the board, when it assumes responsibility for an eligible scheme, to deal with any member's entitlement that was postponed during or for any part of the assessment period when the member continued in employment after attaining normal pension age. The clause ensures that if pension scheme members postponed taking up their entitlement because they decided to continue in work that will be taken into account in calculating the level of compensation payable by the PPF. Regulations may provide for the board in calculating a member's compensation to take account of any entitlement postponed during or for part of the assessment period. 
 In reply to questions raised in different ways by the hon. Members for Eastbourne and for Northavon, I can tell them that it is not the PPF's intention to allow members the option of postponing the compensation when they attain pension age during or after the assessment period. Scheme members who reach pension age when or after the PPF takes over the scheme will have no choice about taking their benefits as they fall due. Of course, if someone does not want to receive the compensation, they can put the payments into a savings account. There will not be 
 restrictions on working after normal pension age and receiving PPF compensation, if someone chooses to do that. There is read-across to potential Inland Revenue simplification that would affect the tax treatment of pensions in payment when members work for the same employer. The clause allows flexibility to deal with the Inland Revenue proposals. 
 Question put and agreed to. 
 Clause 126, as amended, ordered to stand part of the Bill.

Clause 127 - Guaranteed minimum pensions

Chris Pond: I beg to move amendment No. 470, in
clause 127, page 79, line 19, at end insert— 
 '( ) In section 47 of the Pension Schemes Act 1993 (further provision concerning entitlement to a guaranteed minimum pension for the purposes of section 46), after subsection (7) insert— 
 ''(8) For the purposes of section 46, a person shall be treated as entitled to a guaranteed minimum pension to which he would have been entitled but for the fact that the trustees or managers were discharged from their liability to provide that pension on the Board of the Pension Protection Fund assuming responsibility for the scheme.''.'.
 The clause requires the board to notify the Inland Revenue when it has assumed responsibility for an eligible scheme. The amendment is needed to extend current procedures for taking account of the effect of contracting out of the state earnings-related pension scheme to members of a scheme taken into the pension protection fund. This is a complex area, but it is worth ensuring that the Committee has it sorted out. 
 Where a pension scheme was contracted out before 1997, a reduction must be made to the members' SERPS entitlement to reflect the fact that they have paid lower national insurance contributions. That is normally achieved by reducing their SERPS entitlement by the amount of the guaranteed minimum pension payable by the scheme—a system known as the contracted-out deduction, or COD. There are circumstances when an individual has paid a reduced amount of national insurance contributions but does not receive the guaranteed minimum pension. In such cases, a notional guaranteed minimum pension is calculated and then deducted from the person's SERPS entitlement. That is a notional COD—which might be the solution to declining fish stocks. 
 When the pension protection fund takes over a contracted-out occupational pension scheme, it will not take on specific responsibility for paying the guaranteed minimum pension, but the members will still have paid lower national insurance contributions, so we must be able to adjust their SERPS entitlement. If we did not do that, they would effectively be getting SERPS income that they had not paid for. The amendment ensures that we can make that deduction. When a pension scheme is taken over by the pension protection fund and members of that scheme have paid the lower rate of national insurance contributions, the amendment will allow a notional amount to be deducted from their entitlement to SERPS. 
 Amendment agreed to. 
 Question proposed, That the clause, as amended, stand part of the Bill.

Nigel Waterson: The Minister may have already dealt with this question, but I can be forgiven for not realising if he has. I suspect that he would be in some difficulty if I asked him to repeat what he just said without the benefit of his brief. [Hon. Members: ''Shame!''] All that stuff about fish is all very well, but whether amended or unamended, what is the clause meant to do? What are its consequences?
 I gather between 120 and 140 pages of the Finance Bill are devoted to pension simplification. As we consider chunks of this Bill, there is a danger that we will catch glimpses of something called the Finance Bill, on a parallel railway line travelling in roughly but not entirely the same direction, which could have a significant effect on what we are doing, and vice versa. Is there a read-across to the Finance Bill? Does it matter if there is, and if so, what steps are being taken to ensure that we can harmonise—to use that ghastly European term—what we are doing with what the Committee considering the Finance Bill is doing?

Chris Pond: Believe it or not, I can speak on this subject without looking at my notes. There is no read-across to the Finance Bill. We are merely ensuring that the PPF operates in the same situation as existing contracted-out schemes. That means that the PPF will not take on responsibility for guaranteed minimum pensions, but it will take account of the SERPS position and the national insurance contributions that people have made when their schemes have been taken into the PPF. It is a very straightforward matter.
 The hon. Member for Eastbourne was looking at his notes from the NAPF, but I was not looking at my notes at all during that response. 
Clause 127, as amended, ordered to stand part of the Bill.Clause 128Duty to pay scheme benefits unpaid at assessment date

Clause 128 - Duty to pay scheme benefits unpaid at

Amendments made: No. 493, in 
clause 128, page 79, line 22, after 'of' insert 'pensions or other'.
 No. 494, in 
clause 128, page 79, line 28, leave out 'is' and insert 'and ''scheme rules'' are'.—[Mr. Pond.]
 Clause 128, as amended, ordered to stand part of the Bill.

Clause 129 - Modification of Chapter where liabilities discharged during assessment period

Amendment made: No. 385, in 
clause 129, page 79, line 36, leave out 'section 105(5)' and insert 'section 107(4)'.—[Mr. Pond.]
 Clause 129, as amended, ordered to stand part of the Bill.

Clause 130 - Administration of compensation

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: I have some questions and requests for clarification. It is difficult to comment on subsections (1) and (2) because they both refer to future regulations, and we have given up on hoping to see any draft regulations. None the less, I want to raise some issues relating to subsection (2)(a). Is it not a blinding statement of the obvious? Why would one need regulations to prescribe
''the manner in which and time when compensation is to be paid''?
 I presume that, as far as possible, periodic compensation would be paid as if it were the pension being replaced. I presume that it would be paid once a month. I do not like to think of two houses, one with nice shiny paintwork and a new car outside, and the other with weeds growing up the side of the building, because one received payments quarterly and the other did not. I am slightly curious as to why the manner and timing needs to be spelt out in regulations, but no doubt we will be enlightened. 
 Paragraph (b) makes eminent sense. Paragraph (c) is interesting. Does it give individuals the option of saying that they do not want periodic compensation, and just want a lump sum? Is it a variant of the state pension lump sum provision that we have already debated? What kind of ''circumstances and manner'' do the Government anticipate would allow the liability to be discharged? Could the board decide to dispose of a troublesome claimant by paying them a lump sum? Perhaps we could be told. 
 I have no particular point to make about paragraph (d). Paragraph (e) refers to 
''dispensing with strict proof of their title''.
 Is that wise, and on what basis would it occur? Would it mirror what happens already in schemes that are ongoing, or would it be a new departure? How would it work? 
 Next to paragraph (f) I have written ''Tax credits?''. We are all aware of the horrors of some of the Department for Work and Pensions IT schemes, and we are also aware of the debacle with the Treasury and tax credits. Through this paragraph, are the Government recognising in advance that there will be errors in the payment of compensation? Are we already envisaging failures in IT and computer systems, and the recovery of amounts of compensation? In retrospect, I would have been tempted to table an amendment to leave out paragraph (f), because it sounds as if the Department is already working on the basis that problems will arise. 
 Paragraph (g) mentions 
''specifying the circumstances in which payment of compensation can be suspended.''
 Is that on an individual basis, or are we talking about a group of people? What circumstances have Ministers in mind? We should bear in mind that we are not talking about the power under paragraph 30 of 
 schedule 7, which we have debated fairly exhaustively. We seem to be talking about a separate power, which would allow payment to be suspended. Ministers ought to set out the circumstances that they have in mind, even if the draft regulations are not available.

Chris Pond: I am happy to try to clarify things. The hon. Gentleman listed the different elements of the regulations under subsection (2) according to their position in the alphabet—

Nigel Waterson: That is the way that they are written in the Bill.

Chris Pond: I am not criticising the hon. Gentleman; I am simply saying that for the benefit of other members of the Committee, who may not necessarily have the clause in front of them. I will explain where the different elements stand.
 Paragraph (a), which relates to the method and timing of payment, has been included because we want the flexibility for PPF to administer compensation in the most efficient way. Like all the regulations, they will be essential in ensuring that the PPF can deal with the practical elements of the task of paying compensation.

Nigel Waterson: Does that mean that the Minister envisages that PPF pensioners—those people in the house with the unmown lawn and the very old car—might receive their compensation payments less frequently than they would have received their pension payments?

Chris Pond: The assumption is that we will try to replicate the arrangements that already exist. If there are circumstances in which pension scheme members feel that the payment is made using inappropriate method and timing, they have the opportunity to appeal against the way in which that is done. There is no intention to create disadvantage for any individual in the PPF.
 The hon. Gentleman said that he was happy with 
''calculating the amounts of compensation payable''
 in subsection (2)(b) because it was straightforward. I should explain that the reference to lump sum payments in paragraph (c) concerns trivial commutation—situations in which very small sums are involved and it is therefore more sensible for them to be paid as a lump sum, rather than over a period. 
 I believe that the hon. Gentleman was also happy with subsection (2)(d), and that he had no concerns about subsection (2)(e).

Nigel Waterson: Yes, I did.

Chris Pond: I shall return to that in a moment; I may have to ask the hon. Gentleman to repeat his concern. Subsection (2)(f) deals with the recovery of overpayments. It mainly concerns administration during the assessment period. We must ensure that when the board has taken over a scheme, the amount that is paid to individual members of the scheme is appropriate according to entitlements measured against the PPF levels of compensation. Levy payers will want to be assured that the board is administering
 the correct amount of compensation in an efficient manner. That part of subsection (2) will ensure that the board does so.

Nigel Waterson: The Under-Secretary has just described the exact opposite of what the subsection says, because paragraph (e) refers to dispensing with strict proof of someone's title, which was the point that I raised. With regard to the recovery of compensation, my concern was—

Chris Pond: Tax credits?

Nigel Waterson: My concern was about the IT problems.

Chris Pond: The subsection is not concerned with that or with the payment of tax credits, nor is it to do with the board getting anything wrong. It will ensure that the payments that people receive are properly aligned with the PPF level of compensation once they have been transferred from individual schemes into the PPF. It is merely a matter of adjustment rather than of general overpayments.
 The hon. Gentleman was concerned about payments when a beneficiary dies. Paragraph (e) will ensure that the board administers such payments fairly and that the system will not be abused. Paragraph (g) concerns the suspension of payments and relates to fraud, which we will discuss later. 
 Question put and agreed to. 
 Clause 130 ordered to stand part of the Bill.

Clause 131 - Discharge of liabilities in respect of compensation

Nigel Waterson: I beg to move amendment No. 352, in
clause 131, page 80, line 33, at end insert— 
 '(d) by agreeing that the purchase of annuities in respect of an occupational pension scheme which is in the process of being wound up can be postponed, and that relevant benefits may be discharged by the Board.'.
 The amendment is important, and I shall spend a little time developing the argument behind it. It would amend subsection (2) by including another way of discharging liabilities in respect of compensation. We are back with the respectivity issue, which we seem to approach from a number of different directions. 
 The amendment would build on the question of annuities in paragraph (b). We want to amend the Bill to provide that when the purchase of annuities, which is the standard way of crystallising someone's pension promise, occurs in respect of a scheme that is in the process of being wound up, that purchase can be postponed, and the relevant benefits can be discharged by the board. That proposal has been punted around for some time by the pensions action group, including the indefatigable Dr. Ros Altmann. 
 I appreciate that there is a philosophical actuarial discussion surrounding the matter—debated by those to whom the Minister referred as very clever people outside here, whose views he believes should not be 
 taken too seriously. I suppose an actuary would say, ''Yes, annuities are very expensive and one of the main reasons for that is that we are all living longer. So how can we complain? Because when you buy an annuity, you are secure—as secure as anything can be in this world—in the knowledge that you will receive the relevant payments until you depart this life.'' That is the great advantage of annuities. 
 The current problem is that when a company and its scheme are going into wind-up and they do not have sufficient assets, the purchase of annuities for retiring members of the scheme rapidly consumes the available resources. The pensions action group has put forward an interim and not a long-term solution. Until solutions can be found for the 60,000 people who have lost their pension rights, it makes sense to husband the remaining assets of the scheme as well as possible. 
 One way of eking out those resources is to postpone the purchase of annuities and to pay the relevant benefits out of the available funds. The group says that instead of forcing schemes to buy index-linked annuities, we should allow scheme assets to be drawn down to pay pension commitments as they fall due. 
 One way to approach the matter would be to draw the scheme assets that still exist when a scheme is already in wind-up into a central fund run in parallel with the PPF. By running things centrally through the PPF, administration costs and ongoing management would be reduced and it would create an economy of scale. It could also mean saving the high costs of wind-up, where in many cases the cost is more than 5 per cent. of the scheme's assets. 
 The return on annuities is currently about 5 per cent. for a fixed single life and lower at about 3.2 per cent. for joint cover with indexing. That is one major problem currently faced by the schemes. Existing funds should be used to pay existing and new pensioners as they retire until the fund is exhausted. The pensions action group has produced some specific figures for ASW Sheerness, which shows its calculations for the scheme by Dr. Altmann. It proposes that the funds be used to pay for those claims until the fund is exhausted. It says: 
''The government would therefore not have to pay a penny for at least five years. This gives time to plan the finance for the subsequent years.''
 According to Dr. Altmann, the average person would receive a pension of £8,000 a year, which would be drawn for an average of 20 years. With 20,000 people, the average annual cost for the 50 years of the scheme would be £64 million a year. I am not in any position to comment on how accurate those figures are, but they look fairly persuasive to me. When contrasted with an annuity purchase on the same scenario, the group comes up with an amount of £143 million a year—a very big gap. 
 In our continuing attempts as the official Opposition to produce imaginative ideas—

David Cairns: Or borrow other people's.

Nigel Waterson: Or borrow those that other people have, as a substitute for the lack of imagination currently shown by the Government. The postponement of annuity purchases and the use of
 available resources to pay the relevant benefits is a practical short-term approach to the problems of those funds. It comes back to a point that I have made more than once in Committee, which is that the Government should take a lesson from the Conservatives when they were in government and faced with the Maxwell saga. Their solution was the measured introduction of the Pensions Act 1995, but they used imaginative methods to deal with the immediate problems of Maxwell pensioners who faced destitution. In the end, many of the resources were gathered in and the Maxwell problem and the need for legislation were addressed.
 I commend the amendment to the Government. I do not suggest that it is perfectly drafted, but such a solution should be among the powers available to the board. It has particular relevance to the 60,000 people whom we often mention in Committee, and how they are to be looked after.

Steve Webb: The hon. Member for Eastbourne has done the Committee an important service by moving the amendment, although for reasons that I shall explain I am not convinced that it would do what he suggests because of where in the Bill it would go. However, I support the principle behind the amendment. It deals with the urgent matter of things going on prior to the coming into force of the Bill. People are losing out now because funds are being wound up and converted into products, which will result in their receiving less money than they would if the funds were allowed to accrue through investment and paid out only on retirement.
 Essentially, a relatively young scheme member with money in a pension fund may find it being wound up and converted into a promise that would have to be honoured 50 years later. That is an extraordinarily expensive pension promise. Even as we speak, workers are losing their jobs and finding not only that the money in their pension funds is not enough but that it is being converted into expensive promises. That is a real concern. I hope that the Minister will point out, as I suspect he will, that the amendment would not do what the hon. Member for Eastbourne suggests.

Kevin Brennan: Is it the hon. Gentleman's understanding that it would be possible and not unreasonable for independent trustees currently not to go ahead with the purchase of annuities? In other words, they should not be forced to do so if they believed that some form of compensation might be forthcoming. At least for the moment, would it not be sensible for people not to purchase annuities—and cannot they justify that under the current legal position?

Steve Webb: I hope that the hon. Gentleman is correct, but I could not be definitive about it. Certainly, anything that provides breathing space to prevent that irreversible step being taken must be considered. It adds insult to injury that the fund does not have enough money and that what money is left is then used inefficiently to buy the workers rather meagre pension benefits. I would certainly support something along the lines of the amendment, in the right place in the Bill.
 I would not say that was definitive, but my understanding is that clauses 131 and 132, both about the discharge of liabilities, relate to money purchase benefits. As I understand the context of the amendment, we are talking about people who bring not only final salary promises but money purchase benefits to the PPF fund; and the PPF board has the ability to discharge those liabilities by providing an equivalent to the money purchase benefits. Making the amendment to this clause would not deal with the sorts of promises that concern us—but I may have misread the problem. 
 I am with the hon. Member for Eastbourne in spirit, but I am not convinced that the amendment would achieve what he wants.

Chris Pond: We all share some of the spirit of the amendment. The hon. Member for Eastbourne spoke about exploring imaginative ideas to see whether we could find some means of helping those who, in the past, have lost their pension entitlements. The idea behind the amendment, of halting winding up and stopping the purchase of annuities, has, as he rightly acknowledges, been proposed by Dr. Ros Altmann. The hon. Gentleman and other members of the Committee will know that officials have met Dr. Altmann to discuss that and other ideas. During our extensive debates on Thursday about pre-PPF compensation, my hon. Friend the Minister for Pensions said that we will leave no stone—even the most imaginative—unturned to ascertain what can be done without raising false expectations.

Nigel Waterson: Any hopes.

Chris Pond: Not any hopes, but false expectations.
 The hon. Member for Northavon, although he agrees with the amendment in spirit, is correct in saying that this is not the right place for the proposal. The hon. Member for Eastbourne will know, following our discussions on pre-PPF compensation, that the amendment would not have the effect that he wants on clause 131. Clause 131 applies only to schemes under the PPF—those that are not winding up before the appointed day. After the appointed day, any scheme that begins winding up and subsequently falls into the assessment period will have to suspend winding up and halt the purchase of annuities and everything else. 
 Although we understand the reasons why the hon. Member for Eastbourne considers the amendment to be another imaginative way of finding a route through the impasse, I hope that he will accept my assurance, confirmed by the hon. Member for Northavon, that the amendment would not have the effect that he desires.

Nigel Waterson: The Under-Secretary is breaking my heart by pointing that out, but it does not come as a surprise. My amendment is massively flawed, but the bigger flaw is the Government's apparent unwillingness to consider the imaginative suggestions. The amendment does not work as it stands, but almost all of our amendments have been either out of order because of the tightness of the
 money resolution or squeezed in in a vain attempt to catch the Government's attention.
 My initial reaction to the postponement of annuities was that it could not be a solution precisely because of what annuities are there for. However, the more I thought about it, the more the postponement of the purchase of annuities was appealing, at least as an interim measure in some cases. Amendment No. 352 is not remotely appealing, but I hope that further attention will be paid to the idea behind it.

Chris Pond: I want to confirm my position. The hon. Gentleman is right to raise the issues, even if the amendment technically falls in the wrong part of the Bill—I am not criticising him for that. To avoid any doubt, I clarify that we are considering all options. As I have said, there have been discussions with Dr. Altmann and there are strong arguments for and against that and other options. However, I hope that the hon. Gentleman will accept that we are examining every possibility.

Nigel Waterson: I am delighted to hear that. I hope that the Under-Secretary will not take it amiss if I say that I do not need him to tell me that it is right to raise the issues. It is good if he is examining the options and, on that basis, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 131 ordered to stand part of the Bill.

Clause 132 - Discharge of liabilities in respect of money purchase benefits

Amendments made: No. 386, in 
clause 132, page 80, line 38, leave out 
 'have accrued rights under the scheme' 
 and insert 
 'are entitled, or have accrued rights, under the scheme rules'.
 No. 387, in 
clause 132, page 81, line 1, after 'section' insert— 
 ' ''accrued rights'', under the scheme rules of a scheme, include pension credit rights within the meaning of section 124(1) of the Pensions Act 1995 (c.26);'.
 No. 388, in 
clause 132, page 81, line 3, at end insert— 
 ' ''scheme rules'' has the meaning given by section 120(5).'.—[Mr. Pond.]
 Question proposed, That the clause, as amended, stand part of the Bill.

Nigel Waterson: I am sure that it is my fault and a failing of my limited intellect, but I cannot work out why we are suddenly into money purchase schemes—defined contribution schemes—in this clause. The hon. Member for Northavon dealt with that as one of a legion of possible objections to my previous amendment No. 352. If the Minister could explain where money purchase benefits come into this part of the Bill, it would satisfy me inordinately.

Chris Pond: Regulations have to make provision to deal with cases where the board assumes responsibility for an eligible scheme under which one or more members have accrued rights to money purchase benefits. The regulations will enable the board to discharge such liabilities in a prescribed manner. I hope that the hon. Gentleman understands that the clause has to be included because the money purchase elements have to be taken into account by the board when it considers the appropriate level of compensation.
 Question put and agreed to. 
 Clause 132, as amended, ordered to stand part of the Bill.

Clause 133 - Equal treatment

Amendment made: No. 495, in 
clause 133, page 81, line 36, leave out paragraph (a) and insert— 
 '(a) the pension compensation provisions,'.—[Mr. Pond.]
 Question proposed, That the clause, as amended, stand part of the Bill.

Steve Webb: I do not want this clause to go through on the nod. It is quite unusual and is different from the others that we have considered. On reading it, it looks sensible and appears to be the sort of thing that one would want to say—at least, it is the sort of thing that Liberal Democrats would say; I do not know about the Conservatives. The clause says that if a woman is getting inferior pension treatment only on the grounds of her gender, that cannot be right and the scheme should be doing something about it. However, I do not understand what it is doing here in the context of the pension protection fund. Is it mirroring something that occupational pension schemes do anyway? Is this the PPF in its disguise as a pension fund? Is it saying that this morning it was an insurance scheme that did not have to pay benefits, but this afternoon it is a pension fund? They seek it here; they seek it there. Are we dealing with the schizophrenic nature of the PPF, or is it something peculiar to the PPF? In principle, the provision looks like the sort of thing that we would welcome, but it would be helpful to get some clarification about what it is doing here.

Nigel Waterson: There is a lot of sense in what the hon. Gentleman said. There must be a random process at work. Taken at face value, who can disagree with equal treatment? As my party powers ahead into the 21st century with its views on equality and so on, we are dealing in this very week with women being of equal value. However, hon. Members might remember that someone once asked Winston Churchill whether he thought that women should have equality with men. He replied, ''Yes, I think that they should take a step down.''
 It is strange that this clause suddenly pops up here. Is it designed to rewrite terms of pension schemes? If schemes have an inbuilt bias of the sort that the clause assumes, are they not falling foul anyway of some existing provision or law? What does the phrase, 
''as are necessary to ensure that the provision is not less favourable''
 mean? 
 The real corker is in subsection (3), which talks about the difference being due to a material factor. I shall not make the obvious joke about the difference—the Pankhurst joke. The material factor is 
''not the difference of sex, but . . . is a material difference between the woman's case and the man's case.''
 Can the Minister give us an example of what the Government are talking about, how it will be proved and whether it reads across to another set of regulations or law that would assist people in deciding whether subsection (3) applied? On the face of it, it looks fine and dandy, but I share the puzzlement of the hon. Member for Northavon as to precisely what it is doing here—it is as if it strayed in from some other piece of legislation in the course of printing—and how it works in respect of existing pension schemes.

Chris Pond: If it does not sound too much a male-biased phrase, this is a belt and braces clause to ensure that there is no discrimination. Section 62 of the Pensions Act 1995 requires that there should be no discrimination between male and female members on the grounds of gender. That Act provides that any discriminatory provisions in professional pension schemes must be modified so that the discriminatory effect is removed.

Nigel Waterson: Good old Tories.

Chris Pond: Those halcyon days.
 When a scheme enters the PPF, the calculation of payments will be based partly on the scheme rules. The PPF rules do not discriminate between male and female members, but it is possible that scheme rules, which are followed by the PPF, may themselves be discriminatory if section 62 had not been applied correctly. Therefore, clause 133 provides that any of the PPF's payment functions that have a discriminatory effect, whether directly or indirectly, must be modified so that such an effect is removed. 
 In answer to the question by the hon. Member for Eastbourne about the material difference between a man's case and a woman's case—the Pankhurst element of the clause—a scheme may have rules that allow for different provisions for executive and non-executive members or may introduce rule changes that apply from a specified date, such as a change in the accrual rate. In those instances, the differing rules do not apply to the sex of a member but to a material difference in their circumstances. The clause seeks to guard against such elements.

Steve Webb: May I take the Under-Secretary back to his earlier comments? Subsection (5) refers to service since May 1990. At the start of his remarks, he told us that the provision on discrimination came under the 1995 Act. I believe that the hon. Member for Cardiff, West might be interested in this point. Can the Under-Secretary clarify whether the 1995 Act retrospectively provided that there be no discrimination for years of service back to 1990?

Chris Pond: I shall have to seek inspiration on that point. I am sure that it will come to me very soon. It is starting to emerge, but perhaps I could send one of those pen pal letters to the hon. Gentleman. No, it has
 just come to me that, as a result of the European Court of Justice judgment on the Barber case, the 1995 Act introduced payment retrospectively to provide no discrimination.
 Question put and agreed to. 
 Clause 133, as amended, ordered to stand part of the Bill.

Clause 134 - Relationship with fraud compensation scheme

Amendments made: No. 471, in 
clause 134, page 82, line 3, leave out from 'given' to end of line 4 and insert 
 'in respect of a scheme within the first 12 months of an assessment period in relation to the scheme'.
 No. 472, in 
clause 134, page 82, line 16, leave out 'respect of' and insert 'relation to'.
 No. 473, in 
clause 134, page 82, line 21, leave out 'or section 121(2)' and insert 
 ', 121(2) or [duty to assume responsibility for closed schemes](1)'.
 No. 474, in 
clause 134, page 82, line 29, leave out 'and'.
 No. 475, in 
clause 134, page 82, line 31, at end insert 
 ', and 
 (d) in the case of section [duty to assume responsibility for closed schemes](1), has the same meaning as in that provision.'.—[Mr. Pond.]
 Clause 134, as amended, ordered to stand part of the Bill.

Clause 135 - Pension Protection Fund

Chris Pond: I beg to move amendment No. 389, in
clause 135, page 83, line 1, leave out 'income' and insert 
 'any income or capital gain'.

Win Griffiths: With this it will be convenient to discuss Government amendments Nos. 496, 392 and 393.

Chris Pond: These are minor drafting changes.
 Amendment agreed to. 
 Amendment made: No. 496, in 
clause 135, page 83, line 4, after 'section 125(3)(a)' insert 
 'or by virtue of section 130(2)(f)'.—[Malcolm Wicks.]
 Amendment made: No. 497, in 
clause 135, page 83, leave out lines 16 to 18 and insert 'pension compensation provisions,'.—[Mr. Pond.]

Steve Webb: On a point of order, Mr. Griffiths. I am not sure whether, in this sitting, we will reach clause 135 stand part. My question is, if we should happen to do so, would it be in order to table amendments to clause 136 for debate on Thursday or would the fact that we had agreed that clause 135 stood part of the Bill mean that we had reached clause 136 so we could not table amendments?

Win Griffiths: As long as you table them so that they do not get starred, you can go ahead.
 Clause 135, as amended, ordered to stand part of the Bill. 
 Further consideration adjourned.—[Margaret Moran.] 
 Adjourned accordingly at twenty-eight minutes to Six o'clock till Thursday 1 April at half-past Nine o'clock.